RWE rating hit by uncertainty over German regulator

1 June 2005 – Standard and Poor’s Rating Services has affirmed its ‘A+’ long term and ‘A-‘ short term ratings on Germany based utility RWE AG following a review, stating that the outlook is negative.

RWE has amassed a stable and diversified business position and is prominent in Europe as one of the largest electricity suppliers and water utilities and about one half of its operating earnings are from low risk markets such as continental Europe. However, Standard and Poor’s credit analyst, Amrit Gescher, said: “These credit strengths are offset by the company’s moderate financial profile for the rating, and uncertainties about the impact of the planned German energy regulator.”

RWE has benefited from its strong competitive position in the consolidating German electricity market, but uncertainty exists as the planned introduction of an energy regulator could increase competitive pressure.

A statement from Standard and Poor’s read: “The negative outlook reflects the moderate financial headroom available to the company at the existing rating level. Credit dilutive debt funded acquisitions or a faster than expected competitive pace in the German electricity market could put pressure on the ratings.”

A parliamentary arbitration committee is currently discussing the German energy law, although the legislative process could be delayed by expected general elections in 2005.