Fitch Affirms Enersis FC IDR at 'BBB/AA-'

Business Wire, July 2, 2008

CHICAGO & SANTIAGO, Chile -- Fitch Ratings has affirmed both the Foreign Currency Issuer Default Rating (FC IDR) and the Local Currency IDR (LC IDR) for Enersis S.A. (Enersis) at 'BBB', which affects its foreign unsecured debt issuances. In addition, Fitch affirms Enersis' national scale rating at 'AA-(chl)', which affects approximately US$84 million of local bond issuances (UF-denominated). All ratings have a Stable Outlook.

Enersis' ratings are supported by its diversified asset portfolio, consistent credit metrics, adequate debt profile and ample liquidity. The ratings reflect the expected growth in energy demand all throughout Latin America. The ratings are tempered by the company's dependence on dividend payments from its subsidiaries to repay its own debt, and its exposure to less creditworthy international markets, such as Argentina and Colombia, which adds some volatility to the earnings profile. They also incorporate the expected seasonal and regional volatility of the cash flow of the generation business unit, which is associated with hydrological conditions, the unavailability of gas, energy prices, and currency fluctuations.

The Stable Outlook is based on Fitch's expectations that Enersis' credit metrics will remain within the parameters for its current rating category. For the latest 12 months (LTM) ended March 2008, the company had a funds from operations (FFO) interest coverage of 3.4 times (x) and a debt-to-EBITDA ratio of 2.5x. Through 2008-2012 Fitch expects an average FFO coverage above 4x and debt-to EBITDA of approximately 2x.

Enersis' geographic diversification throughout Latin America provides a natural hedge to different regulations and weather conditions. In general, Enersis subsidiaries are financially strong and have leading market positions. The distribution segment provides Enersis with a stable source of funds that has annual healthy organic growth. Most predictable cash flows come from Chilectra S.A. (Chile) that is fully owned by Enersis. The cash flow stability and reliability of the other distribution companies is more difficult to predict as they might be subject to legal restrictions of each country and the willingness of the other shareholders to distribute any source of cash. In the generation business unit cash flow volatility is also partially mitigated by the company's contractual position which reduces the company's risk under a dry environment.

As of March 2008, total consolidated debt was USD8.696 million, with short-term debt representing only 18%; long-term debt maturities are well structured over time. As of March 2008 Enersis had a healthy consolidated cash position of USD1.3 billion, and USD1.1 billion of unused committed and non-committed credit facilities. Annual dividends from subsidiaries support a parent level of debt of USD1.4 billion (USD1.1 billion is in bonds).

Enersis' strategy is to capitalize on the expected regional energy demand growth estimated between 4% and 6% per annum. This growth is supported by the positive energy per capita consumption expectations and the expansion of the industrial and commercial sectors. The company has outlined an aggressive medium-term investment program of approximately USD10 billion between 2008 and 2012 to expand both its distribution and generation businesses. Fitch estimates that these investments will be mostly supported by Enersis internal cash generation. However, the company will need to access the financial markets to face its USD5.2 billion debt amortizations over that period and its dividend policy based on a 70% payout ratio. Fitch anticipates Enersis will have to access the capital markets to partially fund its 2008-2012 expansion program, debt maturities, and dividend policy.

Enersis is one of the largest private electricity utility groups in Latin America. The company has varying ownership interests in electric generation, distribution and transmission companies in Argentina, Brazil, Chile, Colombia and Peru, as well as electric utility related service companies throughout Latin America. Enersis is currently 60.62% owned by Endesa Spain (IDR of 'A-', by Fitch), Spain's largest electrical utility. Beyond its direct investment in Enersis, Endesa Spain holds stakes in many investments as a partner of Enersis and Endesa-Chile.

The ratings of Endesa, S.A. were downgraded by one notch on Oct. 10, 2007 following completion of the tender offer that resulted in 67% ownership of Endesa by Italy's Enel SpA (rated 'A-'; Negative Outlook) and 25% by Spanish diversified construction company Acciona. Endesa's ratings are aligned with those of Enel to reflect the strong control that the new owners will exercise. Endesa's ratings do not reflect Acciona's highly leveraged balance sheet, and it is important to note that Acciona has an option to sell its Endesa stake to Enel in 2010. The new strategic plan has not been announced yet, but over the near term no significant changes are expected for its Latin American subsidiaries.