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Announcement:

Moody's: Longyuan's 1H 2017 results in line with its A3 issuer rating

25 Aug 2017

Hong Kong, August 25, 2017 -- Moody's Investors Services says that China Longyuan Power Group Corporation Ltd.'s results for the six months between January and June 2017 (1H 2017) are in line with its A3 issuer rating. The rating outlook remains stable.

"Longyuan maintained a steady operating performance in 1H 2017, supported by the improving utilization hours of its wind power projects," says Ivy Poon, a Moody's Vice President and Senior Analyst. "Nevertheless, the sluggish performance of its coal power plants continues to weigh on its margins."

"We expect that the company's leverage will remain high, but its moderate capital expenditure plan and the potential settlement of renewable subsidies in 2H 2017 will ease its near-term financing requirements," adds Poon.

Longyuan's utilization hours for wind power projects in 1H 2017 improved by 50 hours year-over-year to 1,030 hours, driven by the fall in its curtailment rate to 13%, after the rollout of favorable government policies in 2H 2016, and the recovery in national power consumption.

Longyuan's consolidated installed capacity reached 19,542MW at end-June 2017, reflecting a 4.3% year-over-year growth.

Accordingly, its Moody's adjusted EBITDA increased by 5.2% to RMB8.1 billion. However, its Moody's adjusted EBITDA margin fell to 66% in 1H 2017 from 69% in 1H 2016, because the improving wind power projects' utilization rate was offset by the reduced profitability of the coal fired power plants, against the backdrop of high coal prices. Coal-fired power accounted for 23% of Longyuan's total net power generation in 1H 2017.

Longyuan estimates that direct sales will account for 18% of its total power generation volume in 2017 compared to 20% in 1H 2017.

Longyuan's leverage remained high for its rating, but its credit metrics were largely stable in 1H 2017, given the moderate capacity additions. During 1H 2017, its adjusted funds from operations (FFO)/debt registered 12.4%, and adjusted debt/capitalization 64.3% compared to 12.7% and 64.0% in 2016, respectively.

Longyuan reported a 67% increase in renewable subsidies receivables to RMB7.5 billion at end-June 2017 from the level at end-2016, mostly driven by the delay in receiving the renewable subsidies from the government. Such delays weakened Longyuan's cash flow and increased its leverage.

Nevertheless, Moody's expects that the government's announcement in April 2017 on expediting the settlement of renewable subsidies and the gradual migration to green certificates from subsidies will alleviate the problem of prolonged receivable collection periods in the near term.

Moody's forecasts that the company's adjusted FFO/debt and debt/book capitalization will register around 11%-14% and 65% respectively over the next 12-18 months. The company expects wind power capacity additions of 1.5GW-1.7GW in 2017, including 550MW offshore wind farms in Jiangsu and Fujian provinces, and a 250MW project in South Africa.

As the largest wind power producer in China, Moody's expects that Longyuan's performance will continue to benefit from the government's promotion of renewable energy.

According to the National 13th Five-Year Plan for Wind Power Development, China aims to increase its installed capacity for wind power to 210GW by 2020, up 36% from the level at end-June 2017.

To achieve such a goal, the Chinese government has announced a series of policies to reduce the curtailment rate since 2016, including the introduction of minimum utilization hours and tightened monitoring over capacity additions to reallocate capacity across regions.

As a result, the national wind power curtailment rate dropped to 17% in 2016 and 14% in 1H 2017 compared to a peak of 21% in 1H 2016.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in June 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

China Longyuan Power Group Corporation Ltd. primarily engages in wind power operations, with a total consolidated installed wind power capacity of 17,417MW over 28 regions in China and Canada at end-June 2017. It also has 1,875MW and 250MW in consolidated capacity for coal-fired and other renewable power generation respectively.

Listed on the Hong Kong Exchange, China Guodian Corporation is Longyuan's largest shareholder, with a 58.44% stake at end-June 2017. Guodian is one of the five largest power generating companies in China, and is 100% owned by the Chinese government.

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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