Hong Kong, March 29, 2022 -- Moody's Investors Service has assigned a senior unsecured rating of A1 to the proposed USD notes of State Grid Europe Development (2014) Plc , a wholly owned subsidiary of State Grid International Development Limited (SGID, A1 stable). The proposed notes will be unconditionally and irrevocably guaranteed by SGID.
SGID intends to use the net proceeds from the notes for refinancing of existing indebtedness and general corporate purposes.
RATINGS RATIONALE
"The A1 rating of the proposed notes reflects the irrevocable and unconditional guarantee from SGID," says Ivy Poon, a Moody's Vice President and Senior Credit Officer.
"SGID's financial leverage will remain broadly stable despite the proposed issuance, because the issuance proceeds will be mainly used for refinancing of maturing debts," adds Poon.
SGID's A1 rating continues to incorporate a four-notch uplift from the company's standalone credit profile, based on a very high level of support expected from its parent State Grid Corporation of China (State Grid, A1 stable). The parental uplift also takes into consideration the high likelihood of support from the Government of China (A1 stable) through SGID's parent, in times of need. SGID is the major platform of the parent's overseas investments and operations. The standalone credit profile is underpinned by SGID's fairly prudent financial management and selective investment criteria, backed by financial and management support from its parent. However, the company's asset quality will remain mediocre because of its sizable exposure to non-investment-grade assets, mainly in Brazil (Ba2 stable).
Moody's assessment of SGID's credit profile also considers the company's stable but moderate financial profile amid an acquisitive strategy. Moody's forecasts the company's ratio of funds from operations (FFO) to debt will be steady in the range of 14%-16% during 2021-23, driven by capital spending of HKD22 billion--HKD35 billion, with a peak in 2021 due to the acquisition of CGE (Compañia General de Electricidad S.A.). Such credit metrics will continue to position SGID at the current standalone credit profile.
In terms of environmental, social and governance (ESG) factors, Moody's has considered that SGID has relatively low carbon transition risk within the utility sector, since it mainly owns and operates power grids. SGID's social risk assessment is based on the proven operating track record of providing reliable power supply with no major accidents. The key considerations of SGID's governance risk include (1) its status as a state-owned enterprise; (2) its investment strategy and financial policy; and (3) the transparency of the acquired assets that are privately owned or not rated by rating agencies.
The rating outlook is stable, reflecting Moody's expectations that (1) SGID's asset mix will not materially shift over the next 12-18 months; (2) SGID will maintain a financial profile that is within Moody's base-case expectation; and (3) support from State Grid will continue as and when needed.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Upward rating pressure is limited, given that SGID's rating is already at the same level as State Grid's and China's sovereign rating.
Nevertheless, positive rating momentum for the standalone credit profile could emerge over time if: (1) the credit quality of SGID's underlying investments significantly improves to a level equivalent to a Baa2 rating or higher on a sustained basis. Factors that Moody's would consider for a higher rating include investment-grade assets accounting for a significant share of SGID's asset portfolio, or an upgrade of the ratings of investees or countries/regions where the unrated investees are located; (2) FFO interest coverage exceeds 4.5x and FFO/debt exceeds 18% on a sustained basis.
SGID's issuer rating and standalone credit quality could come under downward pressure if: (1) the credit quality of its underlying investments substantially deteriorates to a level equivalent to a Ba2 rating or lower on a sustained basis. Factors that Moody's would consider for a lower rating include an increase in SGID's exposure to non-investment-grade assets, the downgrade of ratings of investees or countries/regions where the unrated investees are located, or adverse changes in the regulatory environments in which its investees operate; (2) FFO interest coverage falls below 2.0x and FFO/debt falls below 10% on a sustained basis.
Any evidence of weakening support from State Grid would also strain SGID's ratings.
The principal methodology used in these ratings was Regulated Electric and Gas Networks published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1059225. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
State Grid International Development Limited is wholly owned by State Grid and acts as the parent's major overseas investment platform for the transmission and distribution business. Its investments mainly consist of regulated network assets across nine countries or regions, with key operations in Brazil, Chile, and Australia. State Grid Corporation of China (State Grid) is the largest public utility and power grid company in the world in terms of revenue. The company owns and operates most of China's national power grid network, servicing 88% of the mainland and a population of over 1.1 billion. As of 30 September 2021, State Grid had total assets of RMB4.36 trillion.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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
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
