Hong Kong, July 21, 2020 -- Moody's Investors Service has assigned an A2 senior unsecured rating to
the proposed drawdown under State Power Investment Corporation Limited's
(SPIC, A2 stable) multi-issuer medium term note (MTN) program,
which is issued by SPIC MTN Company Ltd. (the Issuer), and
guaranteed by SPIC.
The rating outlook is stable.
SPIC will use the net proceeds from the MTN program for working capital,
refinancing and general corporate purposes.
RATINGS RATIONALE
The A2 senior unsecured rating on the MTN drawdown reflects the fact that
SPIC's unconditional and irrevocable guarantee will represent an unsecured
and unsubordinated obligation for the group. Obligations under
the guarantee will rank pari passu with SPIC's existing and future unsecured
and unsubordinated obligations. Therefore, the A2 rating
is at the same level as SPIC's A2 issuer rating.
Moody's also expects that the size of the drawdown will be manageable
as compare with the size of SPIC's total debt, therefore will
not affect SPIC's A2 issuer rating.
SPIC's A2 issuer rating combines its Baseline Credit Assessment (BCA)
of ba2 and a six-notch uplift based on the very high likelihood
of support from, and the very high dependence on the Government
of China (A1 stable), under Moody's Joint Default Analysis approach
for government-related issuers.
The six-notch uplift is based on Moody's expectation of a very
high likelihood of central government support, based on SPIC's high
systemic importance as one of the nation's major electricity suppliers,
and its full ownership and direct supervision by the central government,
with a strong track record of government support. The company's
strategic importance is further strengthened by its expertise in nuclear
technology.
SPIC's ba2 BCA reflects its leading position as one of the largest state-owned
power generation companies in China, with a diversified fuel mix
that benefits from favorable renewable energy policies. However,
the company's BCA is constrained by its high level of financial leverage,
an evolving regulatory regime that is transitioning to a predominantly
market-based tariff regime, its exposure to volatile coal
mining and aluminum smelting operations, and the execution risks
stemming from its overseas expansion projects.
SPIC's stable rating outlook reflects Moody's expectations that over the
next 12-18 months, (1) the company will maintain its current
credit profile and financial metrics; and (2) the central government
support is unlikely to change materially, given the company's systemic
importance, technological strengths and status as one of the core
central state-owned enterprises.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
An upgrade of SPIC's issuer rating is unlikely, given that the very
high likelihood of government support is already reflected in the rating
assessment. However, the company's BCA could be upgraded
if (1) it successfully deleverages, such that its funds from operations
(FFO)/debt exceeds 7.5% or its debt/capitalization falls
below 65% on a sustained basis; or (2) Moody's sees a more
supportive regulatory regime over time.
SPIC's issuer rating could be downgraded if (1) Moody's believes
that central government support will weaken; or (2) the company's
standalone credit profile deteriorates as a result of material adverse
changes due to market liberalization, changes in the regulatory
environment, and further aggressive debt-funded expansions
or mergers, or (3) there's a significant rise in business
risks stemming from its development of nuclear technology or overseas
operations.
Financial metrics indicative of a downgrade includes SPIC's FFO/debt
staying below 5% or debt/capitalization staying above 85%
for a prolonged period.
The ratings also consider the following environmental, social and
governance (ESG) factors.
SPIC faces elevated carbon transition risk in its coal-fired generation
and coal mining businesses. This risk is partially mitigated by
SPIC's increasing focus on clean energy expansion.
SPIC faces moderate social risk in terms of worker health and safety in
relation to its construction and operation of power projects. Its
US-originated nuclear technology faces execution challenges with
regards to construction, public acceptance of nuclear power facilities,
and uncertainties related to the US-China conflict.
In terms of governance risk, Moody's has considered SPIC's financial
policy, which is characterized by high capital spending and financial
leverage. But this risk is mitigated by Chinese government's
targets around maintaining low SOE financial leverage.
The methodologies used in this rating were Unregulated Utilities and Unregulated
Power Companies published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1066389,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
State Power Investment Corporation Limited (SPIC) is 90% owned
by the State-owned Assets Administration and Supervision Commission
(SASAC) of the China central government, and 10% owned by
Social Security Funds. Its chairman is directly appointed by the
State Council.
SPIC is one of the five largest power generation companies in China,
accounting for 7.5% of the national installed capacity.
As of the end 2019, the company had a total installed capacity of
151 gigawatts (GW), of which 54% was thermal, 16%
hydro and 30% other clean energy or renewables.
SPIC is the sub-licensing rights owner of the AP1000 and CAP1400
nuclear technology and is one of the three central SOEs that has control
of and ownership in nuclear power plants.
In addition to power generation, SPIC engages in coal mining and
aluminum smelting, which accounted for 65%, 2%
and 21% of its revenue and 81%, 3% and 6%
of its gross profit as of the end 2019, respectively.
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.
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Ada Li
VP - Senior Credit Officer
Project & Infrastructure Finance
Moody's Investors Service Hong Kong Ltd.
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Hong Kong
China (Hong Kong S.A.R.)
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Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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
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Moody's Investors Service Hong Kong Ltd.
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