LONDON, Jan. 26, 2001 — Moody’s Investors Service has today changed the outlook of Electricidade de Portugal’s (EDP) long term rating of Aa3 from stable to negative.

This follows the company’s announcement that they are making a bid of Euro2.7bn for 100% of Hidrocantabrico in conjunction with Caja de Ahorros de Asturias (Cajastur). The rating action reflects the company’s clear aim to position itself strongly within the Spanish market as part of their overall Iberian strategy.

EDP have stated that they will also consider acquiring further assets in Spain through Hidrocantabrico, should they become available as a result of the proposed Endesa/Iberdrola merger.

Moody’s will continue to monitor the situation and should the bid prove successful will consider whether there are further negative implications for the rating, taking into account the final funding structure of this transaction and also the likelihood of further asset acquisitions.

Moody’s would factor the size, price, business risk profile and funding structure of any such asset acquisitions as well as taking into account the strength of EDP’s free cash flows and its strong business position within the Iberian peninsular. A number of uncertainties remain as to how the structure of the Spanish market may develop: EDP’s bid for Hidrocantabrico does have the support of of TXU, Cajastur and Caser who together have 35% of the votes.

However, success is not certain, given that other companies may yet make counterbids and it will also require CNMV and Spanish Governmental approval.

The Spanish government has yet to rule on the proposed merger of Endesa/Iberdrola and conditions for asset disposals and this would then be subject to approval of the companies’ Board of Directors and shareholders. Given possible stringent conditions, it is still not clear if the merger will go ahead and if so, what packages of assets may be up for sale.

EDP’s negative outlook also reflects the fact that the company intends to develop further its multi utility strategy in Iberia, in addition to its existing stated strategy to further its investments in Brazil and to develop its telecommunications activity through Oni which may lead to an overall increase in debt levels.

However, Moody’s believes that a strategic move within the Iberian peninsular could bring positive benefits and synergies for EDP given the expected increasingly close interaction of the Spanish and Portuguese electricity markets.

Electridade de Portugal, Sa, headquartered in Lisbon, Portugal, is a holding company and the country’s dominant vertically integrated electric utility (30% of transmission and the majority of generation, distribution and supply) serving its 10 million population. It also has interests in telecommunications and natural gas. Its consolidated revenue as at December 31, 1999 was approximately Euro 3.4billion.