Moody's upgrades Metrogas

Moody's Investors Service said it upgraded Metrogas SA's debt ratings to Caa1 from Caa2 and national scale rating to Ba1.ar from B1.ar.

The outlook is stable.

The agency said the upgrade follows the company's debt restructuring and takes into consideration the resulting decrease in leverage: the company's debt-to-capitalization ratio fell to 42% at the end of fiscal year 2006 from 70% the prior year and its debt-to-EBITDA ratio fell to 4.3x from 8.7x over the same period.

Moody's believes, however, that at current tariffs levels and without a clear resolution of the regulatory environment in which the company operates, the debt maturity profile will remain challenging - especially in view of the currency mismatch, as all of Metrogas' debt is denominated in dollars and euros and revenues generated in the local market are denominated Argentine pesos.

The ratings continue to balance the company's stable operation as the biggest gas distribution company in Argentina and a growing demand for gas against the fact that rates for Metrogas (distribution margin) have been frozen since 2002 and negotiations with the government regarding tariffs increase have not yet materialized, the agency said.

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