SYDNEY, July 13: Some companies operating in Australia's deregulated electricity industry are highly geared and could have difficulty servicing their debt, an analyst with credit rating agency Standard and Poor's Corporation said on Sunday.

``I think the companies that have taken on a lot of debt and are highly geared will have quite a difficult time servicing that debt,'' S&P Analyst Michael Wilkins said.

Wilkins, speaking in a television interview, said that in Victoria, where the state government has sold off A $18 billion in power assets, generators had a higher level of debt than elsewhere in the world where power assets had been sold off.

``I think there's been more of an appetite for debt here,'' he told the Nine Network's `Business Sunday' programme.

``You're seeing a much more aggressive market and generators with higher levels of debt and really you could see that as being a recipe for disaster unless things changed,'' he said.

``Perhaps what will happen is shareholder returns will shrink or may be they will reschedule their debt with their banks, which is ok if you have a bank facility in place,'' he said.

``If you have a bond issue then of course you can't do that and that is something we would find quite worrying from a credit rating perspective,'' Wilkins said.

He said the situation where companies were pushing down spot prices and cross subsidising them through higher-priced contracts elsewhere could not continue.

``If you think that situation is going to carry on forever then you're living in cloud cuckoo land,'' he said.

``What you are seeing in the Victorian side is quite a highlevel of gearing, low levels of interest coverage and at the same time market prices which are either low or declining,'' Wilkins said.

``For us, that's not a very good situation at all.'' Wilkins, an associate director of S&P's Corporate Utilities division in London, also said New South Wales, which is considering the sale of power assets, was not likely to generate as much from their sale as Victoria, in relative terms.

``I think the proceeds, if privatisation in New South Wales happens, will be less than you've seen on a relative basis to Victoria basically because market prices have fallen and investors and bankers alike have realised that the market is not as fertile as they first thought,'' he said.

Speaking on the same programme, the former head of the New South Wales Treasury, Percy Allan, agreed that the prices, while good, may not be as good as some expect. New South Wales treasurer Michael Egan has said the sales could raise A$22 billion.

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