Hong Kong, July 10, 2017 -- Moody's Investors Service has assigned an A1 rating to Castle Peak Power
Finance Company Limited's proposed backed senior unsecured USD-denominated
medium term notes (MTN). The notes will be issued under the issuer's
existing USD2 billion guaranteed MTN program, which is rated (P)A1.
The outlook of the ratings is stable.
The notes to be issued by Castle Peak Power Finance Company Limited are
unconditionally and irrevocably guaranteed by Castle Peak Power Company
Limited (CAPCO).
CAPCO plans to use the MTN proceeds for the refinancing of its existing
loan facility.
RATINGS RATIONALE
"The A1 rating is primarily driven by CAPCO's predictable
cash flow and low-risk business profile, in turn underpinned
by its robust power purchase agreement and the stable regulatory environment
in Hong Kong," says Ivy Poon, a Moody's Vice President
and Senior Analyst.
"The proposed note issuance will not materially affect CAPCO's
debt leverage, as the majority of the proceeds will be used for
refinancing," adds Poon.
Moody's expects the robustly structured terms of the power purchase agreement
(PPA) with CLP Power Hong Kong Limited (CLPP, A1 stable) will continue
to allow CAPCO to pass through all of its costs and earn its share of
regulated return, thereby supporting its highly predictable cash
flow. The PPA also covers 100% of CAPCO's output and thus
leaves CAPCO with no merchant exposure.
In particular, the new Scheme of Control (SOC) agreement --
signed in April 2017 by CAPCO and CLPP with the government of Hong Kong
(Aa2 stable) -- will replace the existing agreement upon
its expiry at end-3Q 2018 and permit the company to earn a stable
8% return -- although down from the current 9.99%
-- on its investments from 4Q 2018 to end-2033.
On the other hand, CAPCO is exposed to the moderate concentration
risks associated with its high reliance on its two main plants and on
a single offtaker. That said, such asset concentration is
mitigated by CAPCO's proven track record of operating the plants.
The company's reliance on a single offtaker is somewhat mitigated
by CLPP's strong credit quality and Moody's expectation that the PPA will
remain in place over the foreseeable future.
Furthermore, the rating considers CAPCO's high operational and financial
linkages to CLP Power, as well as CAPCO's strong financial headroom
against a likely increase in leverage over the next 3-4 years
Moody's believes that the company will remain an important part of CLPP's
electricity operations because it accounts for around 70% of the
latter's electricity purchases and is the only subsidiary of CLPP which
owns generation assets. Such a high level of strategic importance
underpins Moody's expectation of a high level of support from CLPP in
the event of CAPCO's distress.
Moody's expects CAPCO's funds from operation (FFO)/debt and debt/capitalization
will stand at around 25%-27% and 61%-64%
in 2017-18, respectively, and weaken slightly to around
21%-23% and 63%-66% in 2019-20.
Such metrics are stronger than the 18%-20% and 85%-88%
levels seen during 2011-16 -- prior to the conversion
of the hybrid capital -- and will be consistent with the
company's A1 issuer rating.
The stable ratings outlook reflects Moody's expectation that CAPCO
will maintain its low-risk business profile with predictable cash
flow under its PPA with CLPP and a stable regulatory environment,
at least over the next 12 months.
An upward trend in CAPCO's ratings is limited, given that it is
already at par with its parent CLPP's ratings. An upgrade of CLPP's
ratings, which is unlikely in the near term, could potentially
trigger a review of CAPCO's ratings.
Positive momentum on CAPCO's standalone credit profile could emerge if
its FFO/debt exceeds 25%, or its debt/capitalization falls
below 55% on a sustained basis.
On the other hand, a downgrade of CLPP's ratings will result in
a downgrade of CAPCO's ratings. A material weakening of CAPCO's
business linkage and strategic importance with CLPP could also lead to
a downgrade.
CAPCO's standalone credit profile could be pressured if its FFO/debt falls
below 15% or its debt/capitalization exceeds 75% on a sustained
basis.
Moody's could also assess the rating impact in the event of material changes
to the terms and conditions of CAPCO's shareholder capital agreement.
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.
Castle Peak Power Company Limited, a power generation company in
Hong Kong, is owned 70% by CLP Power Hong Kong Limited and
30% by China Southern Power Grid International (HK) Co.,
Ltd., a wholly-owned subsidiary of China Southern
Power Grid Co., Ltd (A1 stable).
CLP Power Hong Kong Limited, a wholly owned and principal subsidiary
of CLP Holdings Limited (A2 stable), is a vertically integrated
power utility company in Hong Kong. It is regulated by the government
under the Scheme of Control arrangement. The company has a de facto
monopoly over Kowloon and the New Territories.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
tory disclosures contained in this press release apply to the credit rating
and, if applicable, the related rating outlook or rating review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
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
