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Announcement:

Moody's: China Water Affairs' FY2017 results in line with its Ba1 ratings

 The document has been translated in other languages

03 Jul 2017

Hong Kong, July 03, 2017 -- Moody's Investors Service says that China Water Affairs Group Limited's (CWA) results for the fiscal year ended 31 March 2017 (FY2017) were broadly consistent with Moody's expectations, as well as the company's Ba1 corporate family and senior unsecured ratings.

The ratings outlook remains stable.

"CWA's improved operational performance in FY2017 reflects its growing water supply operations," says Ivy Poon, a Moody's Vice President and Senior Analyst.

"The moderation in the company's credit metrics is within our expectations; driven by the company's continued capital expenditure," adds Poon.

Revenue for CWA's water supply operation rose 12.1% year-on-year, supported by moderate growth in its total water supply capacity.

Its gross capacity - water supply and sewage water treatment - rose to 6.67 million tonnes/day at end-March 2017 from 6.20 million tonnes/day at end-March 2016. The capacity growth was mainly driven by the project additions in Guangdong and Jiangxi provinces. Majority of the company's gross capacity came from water supply operations.

The company also reported a 52.7% year-on-year increase to HKD2.3 billion in water supply construction services revenue, of which 80%-90% was contributed by CWA's construction subsidiary responsible for the upgrade of its water supply infrastructure under concession agreements, as intercompany transactions.

Accordingly, CWA's total revenue and adjusted EBITDA in FY2017 increased to HKD5.71 billion and HKD2.27 billion respectively, representing a 20.4% and 11.0% year-on-year growth.

On the other hand, CWA's adjusted debt increased by HKD3.8 billion to HKD11.8 billion at end-March 2017. As a result, CWA's adjusted funds from operations (FFO)/net debt and FFO interest coverage weakened to 18.4% and 4.1x respectively at end-March 2017 from 25.0% and 4.6x at end-March 2016. Moody's FFO calculation has excluded the construction margin from CWA's intercompany projects, due to elimination during the consoldiation process.

The expected moderation in the company's financial profile was because of its large capital expenditure for (1) expansion and upgrade of facilities for CWA's currently operating projects, and (2) acquisition of new projects.

Moody's expects that CWA will maintain an annual growth of 8%-10% in capacity expansion for water supplies and sewage treatment operations during FY2018-19. This situation will translate into an annual capital expenditure that is broadly similar to the level of FY2017.

As such, Moody's estimates that the company's FFO/net debt and FFO interest coverage will register 18%-22% and 3.5x-4.2x during FY2018-19. The projected metrics will remain consistent with the company's current ratings level.

Furthermore, CWA's Ba1 ratings will continue to benefit from its stable water supply business, as highlighted by the segment's low volume risk and the company's monopoly status in its servicing regions.

The principal methodology used in these ratings was Regulated Water Utilities published in December 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

China Water Affairs Group Limited is mainly engaged in the provision of city water supply services in China. At end-March 2017, its gross capacity, including both water supply and sewage water treatment, totaled 6.67 million tonnes/day, covering around 50 cities in China.

The company is listed on the Hong Kong Stock Exchange. At January 2017, it was 26.7% owned by its chairman and founder, Mr. Duan Chuan Liang, 19.5% by ORIX Corporation (Baa1 positive), 4.8% by Norges Bank (unrated), 2.4% by International Finance Corporation (Aaa stable) and 46.6% by members of the public.

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.

Ivy Poon
Vice President - Senior 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

No Related Data.
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