MOODY'S ASSIGNS A3 DEBT RATING TO CLP POWER HONG KONG FINANCING LIMITED'S GUARANTEED MTN PROGRAMME; OUTLOOK POSITIVE
Hong Kong, April 04, 2002 -- Moody's Investors Service has assigned an A3 foreign currency debt rating to the USD1.5 billion multi-currency Medium Term Note Programme (MTN Programme), set up by CLP Power Hong Kong Financing Limited. The rating is based on the direct, unconditional and irrevocable guarantee of CLP Power Hong Kong Limited (CLP Power, the guarantor). The rating outlook is positive. Moody's has also assigned an Aa1 local currency rating to the programme. The rating outlook on that rating is stable.
The ratings reflect CLP Power's sound financial profile and strong and highly stable income generation, protected by the Scheme of Control Agreement (SOC) and the favorable regulatory environment that CLP Power operates in. The ratings also factor in Moody's expectation of a continued stable electricity industry environment in Hong Kong and no material changes to the terms of the SOC prior to its expiry in 2008. Moody's further expects CLP Power to continue to maintain a sound financial profile consistent with its existing rating while seeking to optimize its capital structure in the long term.
Moody's comments that the SOC signed with the Hong Kong Government protects CLP Power from most of the business and financial risks associated with the power business. It allows CLP Power to earn a return of 13.5% per annum on the total value of their average net fixed assets and an additional 1.5% per annum on shareholders' investments made after 30 September 1978 in acquiring fixed assets. Any changes to the terms of the SOC have to be mutually agreed. The duopoly market structure of the Hong Kong electricity industry and well-defined supply territories give CLP Power an effective monopoly on electricity supply to its service areas, even though it does not have an exclusive franchise.
Limitations on changing the terms of the SOC prior to 2008, the high reserve margin in Hong Kong and the developing South China electricity sector make material change to the present regulatory regime of the Hong Kong electricity sector improbable. Moody's, however, anticipates changes to the SOC that could result in a less protective industry and regulatory environment upon renewal of the SOC in 2008. However, the agency expects that any changes to the regulatory regime will only be made at that time and only on terms which will ensure continuity of quality and capacity of service, given the importance of power reliability to the social and economic well-being of Hong Kong.
CLP Power, a wholly-owned subsidiary of CLP Holdings Limited, is headquartered in Hong Kong. It is one of the two vertically integrated electricity utilities in Hong Kong. It has an effective monopoly over Kowloon, the New Territories and some outlying islands, accounting for over 70% of Hong Kong's total electricity demand.
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