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UTILITIES
Publication Date:
Sept. 3, 2007
Issuer Credit Rating:
A-/Watch Pos/A-2
Primary Credit Analyst:
Hugues De La Presle,
Paris,
(33) 1-4420-6666
Secondary Credit Analyst:
Beatrice de Taisne,
London,
(44) 20-7176-3938
48 ■ NOVEMBER 2007
SUEZ S.A.
Rationale
On Sept. 3, 2007, Standard & Poor’s Ratings
Services said that its ‘A-/A-2’ ratings on Franco-
Belgian multi-utility Suez S.A. remain on
CreditWatch with positive implications, following
the announcement of the revised terms for the
merger between Suez and French gas utility Gaz
de France S.A. (GDF; AA-/Watch Neg/A-1+). The
ratings were placed on CreditWatch on Feb. 27,
2006, following the initial merger announcement.
The continued positive CreditWatch reflects
that, notwithstanding changes in the terms of the
merger, it should have a beneficial impact on Suez
from a credit standpoint--in terms of both
business and financial risk. From a business risk
perspective this reflects that, although Suez is the
larger and more diversified company, Standard &
Poor’s views GDF’s business risk as lower, given
the large share of earnings it derives from
regulated French businesses. Likewise, from a
financial risk perspective, although Suez’s
financial profile has improved significantly, GDF
still has much stronger credit ratios.
Under the revised terms, 21 GDF shares will be
exchanged for 22 Suez shares, with no special
dividend being paid. Initially the terms of the
merger were a one-for-one share exchange plus a
€1 billion special dividend to be paid to Suez
shareholders prior to completion. To mitigate the
difference in the share prices of Suez and GDF,
65% of the share capital of Suez’s environment
arm (20% of first-half 2007 Suez EBIT) will be
spun off to Suez shareholders at the time of the
merger, with the enlarged group retaining a 35%
stake. The environment business had reported net
debt of €5.4 billion at the end of June 2007, out
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
of Suez’s reported consolidated debt of
€12.9 billion.
Although the lack of a special dividend and the
spin-off of Suez Environment--given its significant
debt--are favorable from a financial standpoint
compared with the initial terms, the enlarged
group intends to offer substantial returns to its
shareholders. From a business perspective,
although the European water operations (39% of
the EBIT of Suez Environment in first-half 2007)
rank amongst Suez’s strongest businesses, they
would have been small in the context of the
enlarged group.
These revised terms are a significant step
forward but the merger still faces some hurdles,
especially its approval by both groups’
shareholders; the signing of the decree allowing
the privatization of GDF following the passing of
the law in the French parliament; and the
opposition of GDF’s unions.
To resolve the CreditWatch placement, we will
focus on the enlarged group’s strategy and
financial policy.
Short-term credit factors
Suez’s European utility activities’ recurring cash
flow generation and strong liquidity underpin the
‘A-2’ short-term rating. Debt maturities in the
second half of 2007 amount to €5.1 billion
(including €2.3 billion of CP) and represent €3.3
billion and €3.5 billion, respectively, in 2008 and
2009. These are covered by about €8 billion of
available cash, excluding €1 billion of overdrafts
in the next 12 months, while the group has €6.7
billion of undrawn bank lines, excluding the €2.3
billion of CP drawings. ■