Hong Kong, May 04, 2018 -- Moody's Investors Service has assigned a first-time A2 issuer
rating to China Huadian Corporation LTD. (CHD).
At the same time, Moody's has assigned a A2 senior unsecured
rating to the proposed bond to be issued by China Huadian Overseas Development
2018 Limited, a wholly owned subsidiary of CHD. The bond
will be unconditionally and irrevocably guaranteed by CHD.
The ratings outlook is stable.
The proceeds from the proposed issuance will be used for refinancing existing
indebtedness and general corporate purposes.
RATINGS RATIONALE
CHD's A2 issuer rating combines a baseline credit assessment (BCA)
of ba1 and a five-notch uplift based on the very high level of
support expected from the Chinese government (A1 stable), under
Moody's joint-default analysis approach for government-related
issuers.
"CHD's ba1 BCA reflects its leading position as one of the
five largest generation companies in China, with a diversifying
fuel mix and geographical spread. Amongst these five generation
companies, CHD has the biggest installed clean energy capacities
which will benefit from the Government's strategic plan on emission
reductions as a tool to combat climate change," says Boris
Kan, a Moody's Vice President and Senior Credit Officer.
"At the same time, the BCA is constrained by the company's
high level of financial leverage, the evolving regulatory regime
against its core coal-fired power business, challenging operating
environment, moderate exposure against coal mining operations and
execution risks in its overseas expansion projects," adds
Kan.
"Our expectation of a very high level of central government support
is based on the presence of full central government ownership and direct
supervision, and the strategic importance of the company's
role as a major electricity supplier nationally," says Kan.
Despite long-term challenges in the sector, Moody's
expects CHD's financial metrics to gradually improve over the next
three years from 2017 levels with the expectation of moderate decline
on coal price and upward adjustment on coal-fired tariff,
while capital spending remains at moderate levels.
Moody's projects that the ratio of FFO to debt will improve from
6.5% in 2017 to approximately 9.5% over the
next three years, while the ratio of debt to capitalization will
gradually decline from 77.5% in 2017 to 74% in 2020.
CHD's stable outlook primarily reflects Moody's expectation
that: (1) the company will maintain its current credit profile and
financial metrics and (2) central government support is unlikely to change
in coming years, given the company's systematic importance,
and status as one of 49 core central SOEs.
Upward rating potential is limited, given the very high level of
government support already incorporated into the rating. However,
the company's BCA could rise if (1) it successfully deleverages,
such that its funds from operations (FFO)/debt exceeds 13% or its
debt/capitalization falls below 65% on a sustained basis;
or (2) the regulatory regime turns more predictable and supportive over
time.
CHD's issuer rating could be downgraded if (1) the central government
support weakens; or (2) the company's standalone credit profile deteriorates
as a result of adverse changes in China's regulatory environment
(including tighter emissions standards), further aggressive debt-funded
expansions or mergers, or a significant increase in risk profile
from its overseas and coal mine operations.
Financial metrics that could lead to a downgrade include FFO/debt below
5.5% or debt/capitalization above 80% over a prolonged
period.
The methodologies used in these ratings were Regulated Electric and Gas
Utilities published in June 2017, and Government-Related
Issuers published in August 2017. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
China Huadian Corporation LTD. is one of the "big five"
central government-owned power producers in China, accounting
for 8% of national installed capacity. The company is 100%
owned by the Chinese central government, supervised by the State-owned
Assets Administration and Supervision Commission (SASAC) and its chairman
was directly appointed by the State Council.
CHD had a consolidated installed capacity of 146.9 gigawatts (GW)
as of the end of December 2017. In addition to power generation,
CHD engages in coal mining, engineering & construction and financial
services, which accounted for 62%, 27%,
10%, and 1% of its revenue in 2017.
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.
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
