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Announcement:

Moody's: CR Power's planned sale of coal mining assets is credit positive

20 Aug 2018

Hong Kong, August 20, 2018 -- Moody's Investors Service says that China Resources Power Holdings Co., Ltd's announcement that it will sell stakes in various coal mining companies is credit positive, but will have no immediate impact on the company's Baa2 issuer rating and stable outlook.

"The transactions are credit positive for CR Power because they will reduce its overall business risk, given the higher risk inherent in the coal mining segment because of its cyclicality and volatility, compared to the company's core regulated power generation segment," says Ralph Ng, a Moody's Assistant Vice President and Analyst.

"The company will also benefit from the disposals because the proceeds from the transactions, including the proceeds from the repayment of the shareholder loans, will improve its liquidity and offer an opportunity to reduce debt," says Ng.

Moody's conclusions are contained in its just-released report, "China Resources Power Holdings Co., Ltd: Disposal of non-core coal assets is credit positive".

On 19 August, CR Power announced that it had entered into equity transfer framework agreements with respective acquirers to (1) sell 51% shares of CR Daning to its parent, China Resources (Holdings) Company Limited (CRH); and (2) transfer 100% of shares of CR Coal and "three coal companies" (CR Liansheng, CR Shanxi and CR Taiyuan) under CR Coal to Guoyuan Shidai Coal Asset Management Company Limited (Guoyuan company).

The consideration of selling 51% shares of CR Danging to CRH has yet to be determined, subject to the completion of the valuation by an independent third party appraisal institution; the consideration of selling coal assets to Guoyuan Company is at RMB1.

These targets are major coal mining assets indirectly owned by CR Power, accounting for more than 90% of the company's coal production volumes.

Moody's in particular notes that CR Power had some key non-cash impairment charges on its subsidiary coal mines in 2014 and 2015 as a result of the fall in coal prices; additional costs and construction time to meet tightened safety and environmental standards; and an impairment provision of HKD147 million in first half 2018 because of the closure of certain coal mines.

The proposed transactions are prompted by aligning CR Power's strategic direction as a low carbon, clean and efficient integrated energy company, and will allow the company to optimize its resources more effectively on its main businesses and capital structure.

If the transactions are completed on the terms announced, CR Power's exposure to business risk from coal mining will be reduced and the company will become a more focused power generation business, using mainly coal-fired and wind power, a credit positive.

CR Power's coal businesses accounted for around 7.6% and 16.2% of its total revenue and segment profit, respectively, in first half 2018 and 15.5% of total asset at the end of 2017.

The benefit to CR Power from the disposals as a way to improve its liquidity and financial profile will depend on the actual proceeds received and the level of debt reduction.

According to the announcement, CR Power intends to use the proceeds from the transfer and the repayment of the shareholder loan contemplated under equity transfer framework agreement as general working capital and to repay bank loans.

The considerations for both disposals will undergo further auditing and valuation. CR Power targets to receive repayment proceeds relating to the RMB11 billion in shareholder loans it provided to the three coal companies, with the first tranche of repayments of RMB6 billion to be paid concurrently by Guoyuan company upon the completion of the transfer of management rights.

The proposed transaction is credit positive and strengthens CR Power's position within its rating. That said, the financial metrics remain within rating expectation and, as such, the ratings are not immediately affected.

Also, the potential reduction in overall business risks from the disposal, will also remove any potential benefit from the improvement in coal prices, a scenario which moderately offsets the challenges from high fuel costs that negatively affect the generation side of the business.

Subscribers can read the full report at https://www.moodys.com/research/China-Resources-Power-Holdings-Co-Ltd-Disposal-of-non-core-Issuer-Comment--PBC_1138516

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Ralph Ng
Asst Vice President - Analyst
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
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077

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