The international ratings agency Standard and Poor's is leaving Israel Electric Corporation's bond rating unchanged, a decison that is critical for the finnaiclaly ttroubled utuility as it copes with a NIS 1.4 billion cash flow shortfall.

S&P said yestersday it would continue to tag as BB + IEC bonds issued overseas, and at AA- for those issued in Israel, the agency announced yesterday.

But S&P did put IEC on its watch list with a Negative outlook. It warned of a possible multistage downgrade within 90 days if the liquidity-support package being provided by the state is not completed in time.

Yesterday's announcement was preceded by a behind-the-scenes drama between Jerusalem and London. It turns out that S&P International had decided last week to lower IEC's bond rating by two rungs to BB-. The decision came after a series of discussions by S&P's London debt ratings staff, who were joined - in a surprise move - by their Israeli counterparts.

Other international ratings agencies, including Moody's, had expressed concerns in recent weeks about IEC's cash-flow problems, as well as about the reports in the press over the Finance Ministry's loss of faith in the company's management.

At S&P, the London-based sovereign group, which deals with national ratings, decided to intervene in the rating process, because IEC is government-owned. That sparked worries at the Finance Ministry in Jerusalem that a downgrade for IEC might damage Israel's sovereign bond rating as well.

Finance Ministry officials immediately urged S&P to delay the announcement of the IEC downgrade for a few days so they could formulate an emergency rescue plan for the company.

This step is what caused the treasury to release its public announcement of support for IEC and its management last week, as well as doubling the state guarantees promised to IEC for 2012 to NIS 1 billion.

This week, in addition, the treasury promised a further NIS 2 billion in guarantees for 2013, as well as state guarantees for rolling over its short-term debt of another NIS 4 billion raised this year.