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S&P see improved outlook for CEZ

2 April 2003 – Standard & Poor’s Ratings Services said today it revised its outlooks on Czech Republic-based electricity generator CEZ A.S. and regional electricity distributor Severomoravska Energetika A.S. (SME) to positive from stable. At the same time, Standard & Poor’s affirmed its corporate credit ratings on CEZ (BBB+/–), SME (BBB/A-2), and Zapadoceska Energetika A.S. (ZCE; A-/Stable/A-2), another Czech regional electricity distributor.

The rating actions are in response to the closure of CEZ’s acquisition of the government controlled National Property Fund’s (NPF) stakes in the country’s eight regional electricity distribution companies (REPs).

“For CEZ, the outlook revision reflects the strategic and business benefits expected from increased downstream access and potentially reduced competitive pressure, which provides a good balance against the loss of control over the country’s transmission operation and the limited negative financial impact from the transaction,” said Standard & Poor’s credit analyst Andreas Zsiga. “For SME, the outlook change reflects the potential benefits from being linked to its stronger, new 60%-owner and main supplier, CEZ.”

“At this stage, the ratings on ZCE are unchanged, as CEZ will hold only a slight majority in it of about 50.3%, which is balanced by the combined ownership of Germany-based E.ON A.G. (AA-/stable/A-1+) and Austria-based Energie AG Oberoesterreich (A+/Stable/–) of more than 45%,” said Standard & Poor’s credit analyst Ralf Etzelmüller.

Standard & Poor’s assesses that the limitations imposed on CEZ by the competition authority to own only four REPS might result in significant further changes in the ownership structure of the companies, resulting in further concentration of ownership in individual REPS, with a potential impact on their credit quality.