FRANCE – French utility Gaz de France has had its long-term corporate rating lowered to AA by Standard & Poor’s, partially as a result of the future pension reform in France.

"The rating action follows our recent assessment of GDF's stand-alone credit quality and the likely impact of the future pension reform in view of the expected partial opening of the company's capital in the next few years," said Standard & Poor's credit analyst Jean-Francois Véron. Previously GDF’s long-term rating was AAA. Its short-term rating of A-1+ has been put on negative outlook.

Gaz de France has 12.5 billion euros of gross pension commitments, compared to eight billion euros at the end of 2001. Of this amount, 1.3 billion euros is covered by voluntary pension insurance fund payments.

Says Standard and Poor’s: “We do not expect the company to assume responsibility for the ordinary pension obligations (around 60% of 7.5 billion euros).” However, S&P believes that a significant part of the remaining 40% of pension coverage will be removed from the company’s balance sheet.

"The negative outlook reflects uncertainty about the ongoing negotiations over the partial transfer to third parties of GDF's pension commitments, together with anticipated changes in GDF's business profile, particularly possible larger acquisitions after an expected capital increase at the time of the capital opening," added Véron.

Given the group's strong financial profile, however, Standard & Poor's views it as very unlikely that GDF's credit quality would drop below 'AA-' once pension and IPO issues have been resolved.

The partial privatisation of Gaz de France and Electricite de France following pressure from the European Commission resulted in the current generous pension plans at the two utilities being put under scrutiny. A newly created fund with contributions in line with those paid by employees in the standard state-sponsored system has been proposed.

The restructuring of the pension system of the energy sector has been widely regarded as the first step in the plan to reform France’s over-burdened state pension system. The reform itself has faced continued criticism from France’s unions. On Tuesday the nation faced a strike which disrupted the transport network.


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