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Announcement:

Moody's: CLP Holdings' rating unaffected by 1H 2013 results but financial headroom is reducing

 The document has been translated in other languages

14 Aug 2013

NOTE: On August 16, 2013, the press release was revised as follows: The seventh paragraph was amended and now reads as follows: “In addition, CLPH's Indian operations recorded a wider loss of HKD212 million compared with a operating loss of HKD163 million in 2H 2012, as the plant availability of the new Jhajjar plant was less than 40% in 1H 2013.” Revised release follows:

Hong Kong, August 14, 2013 -- Moody's Investors Service says that the 1H 2013 results of CLP Holdings Limited (CLPH) will have no immediate impact on the company's A2 issuer rating but financial headroom is reducing due to prolonged weak performance in Australia and India.

The rating outlook remains stable.

While CLPH reported a modest growth of 12% in revenue for 1H 2013, its recurring earnings were at a similar level as in 1H 2012, excluding one-off expenses related mainly to the remediation of its Yallourn mine in Australia and the impairment and divestment costs of a Boxing biomass project in China.

"CLPH's Australian operations remained under pressure owing to the difficult market conditions and increasing operating costs. Moreover, the ongoing coal shortages in its Jhajjar plant in India constrained the plant availability in the first half," says Ivan Chung, a Moody's Vice President and Senior Credit Officer, adding, "The lingering challenges in both markets make it difficult to materially turn around these operations in next 12 months."

The company's Australian operations reported a loss of HKD45 million, before one-off items, compared with a profit of HKD268 million in 1H 2012.

The operations have been under pressure since FY2012 owing to structural issues -- driven by both external and internal factors -- such as weak demand, low wholesale prices, intensified market competition, regulatory uncertainty and increased operating costs following the integration with the New South Waves operations. The Australian operations used to be the second-largest contributor to CLPH's operating earnings, accounting for 28% of the total before one-off items in FY2011.

In addition, CLPH's Indian operations recorded a wider loss of HKD212 million compared with a operating loss of HKD163 million in 2H 2012, as the plant availability of the new Jhajjar plant was less than 40% in 1H 2013.

"Nonetheless, the stable Hong Kong operations and its growing China business serve as a buffer against the poor performance of CLPH's overseas business," says Chung, also Moody's Lead Analyst for CLPH.

The Hong Kong operations reported a modest growth in earnings of 8.1%, supported by the stable regulatory regime. Earnings from its China business grew 12.7%, driven by lower coal prices.

Although CLPH's overall credit metrics could weaken in 2013, given that it will be some time before its Australian operations improve substantially, Moody's expects average Fund from operation (FFO)/interest coverage of around 5.5x, FFO/debt at 20% and debt/capitalization at around 45% in next two to three years. Such metrics will still be consistent with its A2 rating, albeit financial headroom is reduced by the weak performance in the Australian operation.

Moody's notes that CLPH has taken some measures to alleviate cost pressure, as evidenced by its acquisition of the Mount Piper Power Station and the Wallerawang Power Station in New South Wales.

The company has long-term off-take contracts -- known as the Delta Western GenTrader Agreements -- to buy electricity and control the dispatch of power from the plants. With the ownership of these two plants, CLPH's overall generation costs will decrease. It will also be able to control their operational efficiency and costs, rather than paying the current fixed contractual commitments.

Furthermore, Moody's expects the company's Jhajjar plant in India to narrow its loss in 2H 2013 after improving the plant availability. The plant availability had already increased to around 85% in July.

The stable ratings outlook reflects Moody's expectation that the Hong Kong operation will continue to cushion against the volatility in overseas business, thereby stabilizing CLPH's financial profile.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

CLP Holdings Limited, headquartered and listed in Hong Kong, operates its electric utility business through its wholly owned subsidiary, CLP Power Hong Kong Limited. The group also has a growing portfolio of electricity generation investments across Asia Pacific.

CLP Power Hong Kong Limited is a vertically integrated electricity generation, transmission, and distribution company. It is regulated by the Hong Kong government under the Scheme of Control Arrangement and accounts for the majority of CLPH's operating cash flow. The company has a de-facto monopoly over Kowloon and the New Territories, which together account for over 80% of Hong Kong's population.

Ivan Chung
VP - Senior Credit Officer
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Patrick Mispagel
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: CLP Holdings' rating unaffected by 1H 2013 results but financial headroom is reducing
No Related Data.
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