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Announcement:

Moody's: China's State Power Investment's ratings unaffected by asset sale to Shanghai Electric Power

30 Nov 2016

Hong Kong, November 30, 2016 -- Moody's Investors Service says that the A2 ratings of State Power Investment Corporation (SPIC) are unaffected by its decision to inject an asset into its 60%-owned listed subsidiary, Shanghai Electric Power Company Limited (SEP, Baa2 review for downgrade).

On 24 November 2016, SEP announced that it will acquire 100% of SPIC's Jiangsu subsidiary through the issuance of RMB2.7 billion in new shares and payment of RMB312 million in cash.

At the same time, SEP will issue new shares to a maximum of 10 investors with expected proceeds of up to RMB2.09 billion. It plans to use the proceeds to finance new coal-fired and wind-power facilities, part of which relate to the Jiangsu subsidiary being acquired.

"The asset injection and proposed share issuance is mildly credit positive for SPIC as it indicates SPIC's deleveraging effort, given that the capex requirement related to the Jiangsu subsidiary would have been partly debt funded by SPIC," says Ada Li, a Moody's Vice President and Senior Analyst.

"That said, SPIC's ratings are unaffected, as the assets involved are -- in terms of value -- equivalent to less than 1% of SPIC's assets at end-2015," Li says, adding "Moody's does not expect SPIC's credit profile will be immediately affected in a material way."

Moody's estimates SPIC's consolidated debt/capitalization at end-2017 will be around 84%, excluding the proposed equity issuance which is uncommitted.

SPIC's stake in SEP will fall marginally to 59.33% from 60% upon completion of the proposed asset injection and share placement.

The proposed transaction aligns with the Chinese government's (Aa3 negative) reform agenda, which aims to achieve a greater exposure for state-owned assets to market forces.

SPIC will guarantee the net profits of the injected asset during 2017-2019, and will compensate SEP for the difference between projected net profit and actual net profit.

SPIC will also enter a non-competing agreement with SEP, indicating the potential for further asset injections when applicable.

SPIC's investors and SEP's new investors will be subjected to respective 36-month and 12-month lock-up periods for the newly issued shares if the transaction materializes.

Moody's expects the transaction to close in Q1 2017, subject to clearances, including:

1. Filing of the transaction's valuation report at the State Council's State-owned Assets Supervision and Administration Commission (SASAC)

2. The approval of SEP's board of directors once the audit and evaluation of the transaction is completed

3. SASAC's approval of the transaction, including the sales and purchase agreement

4. The approval of SEP's shareholders

5. The approval of the China Securities Regulatory Commission

The methodologies used in this rating were Regulated Electric and Gas Utilities published in December 2013, and Government-Related Issuers published in October 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

State Power Investment Corporation (SPIC) is one of the "big five" central government-owned power producers in China. It is 100% owned by the central government, supervised by the State-Owned Assets Administration and Supervision Commission, and its Chairman is directly appointed by the State Council.

SPIC is one of the five largest power generation companies in China, accounting for 7% of national installed capacity. It had total installed capacity of 113GW at end-June 2016, of which 62.6% were thermal, 19% hydro; and 18.4% other clean and renewables.

SPIC is the sub-licensing owner of AP1000 and CAP1400 nuclear technology and is one of the three central SOEs which have control and ownership of nuclear power plants.

Power generation, as well as vertically integrated coal mining and aluminum smelting operations accounted for 44%, 19% and 14% of its end-2015 revenue, and 76%, 4% and 2% of its end-2015 gross profit, respectively.

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.

Ada Li
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
SUBSCRIBERS: (852) 3551-3077

Terry Fanous
MD-Public Proj & Infstr Fin
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

No Related Data.
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