Hong Kong, July 21, 2022 -- Moody's Investors Service has assigned senior unsecured rating of A1 to the proposed guaranteed senior unsecured USD notes to be issued by Three Gorges Finance I (Cayman Islands) Ltd., a wholly owned subsidiary of China Three Gorges Corporation (CTG, A1 stable). The proposed notes will be unconditionally and irrevocably guaranteed by CTG.
The outlook on the ratings is stable.
CTG plans to use the net proceeds of the proposed USD notes for refinancing indebtedness and general corporate purposes.
RATINGS RATIONALE
"CTG's A1 issuer rating and the senior unsecured rating on the proposed guaranteed notes reflect the company's sound standalone credit profile, underpinned by its position as the world's leading hydropower company and our expectation of a very high likelihood of support from the Chinese government, if needed," says Ada Li, a Moody's Vice President and Senior Credit Officer.
"The proposed issuance will not materially affect CTG's credit metrics, as the size of the issuance is manageable relative to the company's overall scale, and we expect part of the net proceeds will be used to refinance existing debt," adds Li.
CTG's A1 issuer rating primarily combines its Baseline Credit Assessment (BCA) of baa2 and Moody's assessment of a very high likelihood of support from and a high level of dependence on the Government of China (A1 stable), which results in four notches of rating uplift. This support assessment reflects CTG's 100% government ownership; the company's high strategic importance to China's clean energy development, ecological conservation and environmental protection; and the government's history of providing support. The assessment also factors in the Chinese government's strong ability to provide support, as reflected in its A1 sovereign rating.
CTG's baa2 BCA reflects the company's leading position in the Chinese and global hydropower industries, a domestic policy framework that favors renewable energy, the stable cash flow from the company's large-scale operating assets and its good access to capital markets and banking credit facilities. CTG's BCA also takes into consideration the social and environmental risks associated with the company's large-scale hydroelectric and water conservancy projects; the financial strain and execution risks related to the company's greenfield projects and overseas investments; and the concentration risks in the company's domestic hydropower generation assets.
The stable outlook on CTG's rating reflects the company's BCA, which remains appropriately positioned at baa2; and the Chinese government's ability to provide continued policy and regulatory support, and maintain its ownership of the company.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
A rating upgrade is unlikely because the rating is already at the same level as the sovereign rating.
CTG's BCA could be raised if there are significant improvements in China's regulatory framework, with an established track record of a favorable tariff-setting mechanism. Credit metrics that Moody's would consider for a BCA upgrade include the agency's adjusted debt/capitalization below 35% and funds from operations (FFO, which is cash flow from operations pre-working capital changes)/debt above 30%, both on a sustained basis. Moody's would also upgrade the rating if there is a strengthening of the Chinese government's ability to provide support, which would be illustrated by an upgrade of the sovereign rating.
CTG's rating could be downgraded if the company's BCA deteriorates; and there is any weakening in the company's relative importance in the implementation of strategic national policy goals, which would be indicated by a lowering of the central government's willingness to provide support. CTG's rating could also be downgraded if China's sovereign rating is downgraded.
CTG's BCA could be lowered if the company incurs significant cost overruns or delays in its projects; it is unable to obtain sufficient external funding to support capital spending or refinance maturing debt; social and environmental events lead to significant liabilities; CTG engages in large-scale debt-funded mergers and acquisitions; or changes in the current supportive government policies weaken CTG's profitability and debt-service coverage.
Credit metrics that Moody's would consider for a BCA downgrade include adjusted debt/capitalization above 50% or FFO/debt below 10%, or both, on a sustained basis. However, a lowering of CTG's BCA (other things being equal) might not immediately weaken its rating because of the very high likelihood of support expected from the Chinese government.
The methodologies used in this rating were Regulated Electric and Gas Utilities published in June 2017 and available at https://ratings.moodys.com/api/rmc-documents/68547, and Government-Related Issuers Methodology published in February 2020 and available at https://ratings.moodys.com/api/rmc-documents/64864. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of these methodologies.
China Three Gorges Corporation (CTG) is a wholly state-owned enterprise directly under the Chinese central government. It was 90% owned by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC) and 10% owned by the Social Security Funds as of the end of 2021.
As of the end of 2021, CTG had a total installed capacity of 109.4 gigawatts (GW), comprising 11.0 GW in overseas projects, including Brazil (Ba2 stable) and European countries. As of the end of 2021, its domestic hydropower accounted for 67.2 GW, and domestic wind and solar capacity accounted for 26.5 GW. CTG reported RMB136 billion in revenue in 2021, up 21.8% from that a year earlier, of which 55.2% was from hydropower, 14.4% from renewables, and the rest from other businesses including electricity distribution, contracting and finance.
REGULATORY DISCLOSURES
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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.
Ada Li
VP - Senior Credit Officer
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
Yian Ning Loh
Associate Managing Director
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
