Moody's Investors Service has confirmed the Baa2 corporate family rating, the Baa3 issuer rating, as well as the debt ratings of China Resources Power Holdings Company Limited (CR Power). It also confirmed the Ba2 rating of the perpetual subordinated capital securities issued by China Resources Power East Foundation Co Ltd, which are guaranteed by CR Power.
Moody's has also removed these CR Power ratings from watchlist for possible upgrade and changed their rating outlook to stable.
These rating actions are the result of the cancellation of the planned merger between CR Gas and CR Power owing to a lack of sufficient support during a shareholder vote that took place on 22 July 2013.
RATINGS RATIONALE
Moody's placed the ratings of CR Power on review for upgrade on 13 May 2013 after announcement of the proposed merger because, if successful, it would lead to higher expected support for CR Power from its parent company and synergies in utilities operations combining power generation and gas distribution.
"As the merger will not proceed, we have changed the ratings outlook to stable," says Ivan Chung, a Moody's Vice President and Senior Credit Officer.
The stable outlook reflects Moody's expectation that CR Power will maintain its financial discipline as it continues to expand, as well as its strong access to bank funding to support growth.
Pressure for a ratings upgrade will be limited in the near team, given the lack of automatic cost-pass through in coal-fired generation. Upgrade rating pressure could emerge over time if there is improvement in regulated environment for coal-fired generation or if CR Power: (1) meets its business expansion plan; (2) stabilizes its fuel costs by securing substantial ownership in coal supply; (3) is able to improve its financial profile such that FFO/interest exceeds 4x-5x, Debt/Capitalization falls below 40%-50%, and RCF/Debt exceeds 15%-20% on a sustainable basis.
The rating could be downgraded if CR Power: (1) fails to meet its business plan and generate sufficient returns on its new capital expenditures and investments; (2) takes on aggressive debt-funded expansion projects or acquisitions; (3) suffers a decline in profitability, such that its EBITDA margin falls below 20%; or (4) suffers a material impact operationally due to environmental concerns or new regulatory measures.
Such deterioration in CR Power's fundamentals is expected to be accompanied by weakening credit metrics - FFO/interest below 2.5x, Debt/Capitalization above 60%-65%, and RCF/Debt below 10%.
Furthermore, a material deterioration in the credit profile of the parent or evidence of weakness in its support for CR Power will pressure the rating.
The principal methodology used in rating CR Gas and CR Power was "Regulated Electric and Gas Utilities," published in August 2009. Please refer to the Credit Policy page on www.moodys.com for a copy of this methodology.
CR Power is an independent power producer which invests in, develops, owns and operates power plants in China. It began constructing its first power plant in 1994 and was listed on the Hong Kong Exchange in November 2003. Its 63.51% shareholder, China Resources (Holdings) Co Ltd (unrated), is a major Chinese conglomerate, ultimately owned by China's State Council. As of 31 December 2012, CR Power had 64 power plants in commercial operation, with a total attributable installed capacity of 25,271 megawatts. About 92.2% of its attributed installed capacity is coal fired. The remainder is powered by wind, water and gas.
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Additional Reading...
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