Moody's may downgrade Panva Gas

Moody's Investors Service said it placed Hong Kong-based Panva Gas Holdings Ltd.'s Ba1 corporate family and senior unsecured bond ratings under review for possible downgrade following the company's announcement that it incurred HK$208 million in market-to-market losses in 2005 arising from two interest-rate swaps, which has weakened the company's financial profile.

The agency said it is concerned that these swaps, entered in relation to Panva's bond issuance in 2004, are not hedging instruments but expose the company to the risk of rising interest rates.

In addition to the market-to-market loss, Panva is currently paying an effective interest cost of over 15% for its bonds due to interest rate hikes until at least September 2006, when interest rates are reset again. Furthermore, it is the agency's understanding that Panva would need to increase its cash collateral if its ratings are downgraded.

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