Hong Kong, May 15, 2019 -- Moody's Investors Service has assigned an A2 senior unsecured rating
to the proposed senior guaranteed perpetual securities to be issued by
China Huadian Overseas Development Management Company Limited and guaranteed
by China Huadian Corporation LTD. (CHD, A2 stable).
The outlook is stable.
The proceeds from the USD senior guaranteed perpetual securities will
be used for investments in overseas projects, refinancing the Group's
indebtedness and other general corporate purposes.
RATINGS RATIONALE
The A2 rating reflects the fact that the proposed senior guaranteed perpetual
securities will rank at least equal to other unsecured unsubordinated
obligations of CHD.
"The perpetual securities will not have a material impact on CHD's overall
credit profile — if they are issued as planned — because the
scale of the issuance will be manageable for CHD," says Boris Kan,
a Moody's Vice President and Senior Credit Officer.
"We consider the proposed senior guaranteed perpetual securities as debt
even though they contain certain hybrid-like features, such
as the option of deferred coupons on a cumulative basis," adds Kan.
"Our view is based on the fact that the step-up cost has created
a strong incentive for the company to prepay the securities upon the first
call date in 2024."
The rating on the securities could be downgraded if Moody's assesses that:
(1) the company is likely to defer a large number of coupon payments in
advance of default; or (2) debt with deferral features becomes a
substantial part of the company's capital structure.
CHD's A2 issuer rating combines its Baseline Credit Assessment (BCA) of
ba1 and a five-notch uplift based on Moody's expectation that the
company will receive a very high level of support from the Government
of China (A1 stable), in times of need. Under Moody's Joint
Default Analysis approach for government-related issuers,
Moody's also assesses that CHD has a 'very high' level of
dependence on the Chinese government.
The five-notch uplift reflects CHD's high systemic importance as
one of the largest state-owned power generation companies in China,
and its full ownership and direct supervision by the central government,
with a strong track record of government support.
CHD's ba1 BCA reflects its leading position as one of the five largest
generation companies in China, with a diversified fuel mix and geographic
spread. However, the company's BCA is constrained by its
high financial leverage, an evolving regulatory regime, a
challenging operating environment with delays in the cost pass-through
of tariffs, its moderate exposure to coal-mining operations,
and execution risks associated with its overseas expansion.
The stable outlook reflects Moody's expectations that (1) the company
will maintain its current credit profile and financial metrics; and
(2) the central government will continue to provide support in times of
need, given the company's systemic importance and status as
one of the core central state-owned enterprises (SOEs).
Upward rating potential is limited, given the very high level of
government support already incorporated into the rating.
Nevertheless, the company's BCA could rise if (1) it deleverages
successfully, such that adjusted funds from operations (FFO)/debt
exceeds 13% or debt/capitalization falls below 65% on a
sustained basis; or (2) there is a track record of a predictable
and supportive regulatory regime over time.
Moody's would downgrade CHD's ratings if the company's BCA
weakens because of a material deterioration in its business or financial
profile, without any material change in the support assessment.
The BCA could be lowered as a result of (1) adverse changes in China's
regulatory environment, including tighter emission standards for
coal-fired units; (2) further aggressive debt-funded
expansions or mergers; or (3) a significant rise in the level of
risk for CHD's business profile from the development of its overseas and
coal-mining operations.
Credit metrics indicative of downward pressure on the company's BCA include
adjusted FFO/debt falling below 5.5% or debt/ capitalization
rising above 80% for a prolonged period.
CHD's ratings could also be downgraded, without lowering its BCA,
if there are signs of weakening support from the central government.
The methodologies used in this rating were Regulated Electric and Gas
Utilities published in June 2017, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
China Huadian Corporation LTD. (CHD) is one of the five biggest
central government-owned power producers in China, accounting
for around 8% of the national installed capacity. The company
is 100% owned by the Chinese central government and supervised
by the State-owned Assets Supervision and Administration Commission
(SASAC), and its chairman was directly appointed by the State Council.
CHD had a consolidated installed capacity of 147.8 gigawatts (GW)
as of the end of December 2018, of which 60.3% was
coal-fired power, 10.2% was gas-fired
power, 18.4% was hydro power and 11% was other
clean or renewable sources of power.
In addition to power generation, CHD engages in coal mining and
other business (such as engineering and construction, and financial
services), which accounted for 85%, 8% and 7%
of its revenue in 2018.
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.
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.
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.
Boris Kan
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
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
