Hong Kong, February 20, 2020 -- Moody's Investors Service has revised the outlook on the rating of Beijing
Energy Holding Co., Ltd. (BEH) to negative from stable.
At the same time, Moody's has affirmed BEH's A3 issuer rating.
The rating action has been prompted by the announced subscription of a
32% stake in Panda Green Energy Group Limited (Panda Green) (Caa1
stable).
On 18 February 2020, Panda Green announced that BEH, through
its Hong Kong subsidiary, has subscribed to 7.2 billion of
new Panda Green shares for a total cash payment of HKD1.79 billion.
The transaction makes BEH the single largest shareholder, with a
32% stake in Panda Green's enlarged share capital.
RATINGS RATIONALE
"The transaction further raises Beijing Energy's already weakly
positioned financial leverage to a level that is no longer consistent
with a stable outlook," says Boris Kan, a Moody's Vice
President and Senior Credit Officer.
"This is demonstrated by Beijing Energy's adjusted funds from operations
to debt which, after the pro-rata consolidation of Panda
Green's financials, will weaken to around 6.5-7.0%
in 2020, compared to the 7% downgrade trigger," adds
Kan.
Moody's expects BEH will maintain a sizeable capital investment
of RMB15-17 billion annually during 2020-21, compared
with an average of RMB15 billion annually over 2016-18, to
meet the ongoing growth in power and heating demand and the government's
target to combat air pollution. The sizeable capital investments
have resulted in BEH's weakening financial profile in recent years,
and will continue to stress its metrics amid the evolving regulatory regime
in China's power sector.
Moody's also believes that the application of the new coal-fired
power tariff mechanism, which became effective on 1 January 2020,
may weigh on BEH's financial profile. Although the new mechanism
may provide more timely tariff adjustments, Moody's expects
coal-fired tariffs for power sales under the new mechanism will
be at a discount from the regulated on-grid tariffs under the previous
regime. This will weaken BEH's profit margin in the long
run.
In addition, as part of the investment into Panda Green, BEH
plans to provide a RMB8-10 billion credit enhancement guarantee
to Panda Green over the next 3 years to help reduce the latter's financing
costs. This will further raise BEH's leverage and pressure
its credit profile.
BEH and Panda Green have not yet commented on their business strategy
and deleveraging plan post transaction, and no changes to Panda
Green's board have been announced.
During the outlook period, Moody's will (1) focus on the business
and financial profile post-acquisition, especially in terms
of the financial support BEH will be required to provide to Panda Green,
and its ability to lower borrowing costs for the latter, (2) monitor
the company's strategy to achieve operational synergies and future
development plan for Panda Green, and (3) BEH's coal-fired
power generation performance under the new tariff mechanism.
The rating could be downgraded if (1) the likelihood of government support
for BEH decreases; (2) adverse policy changes by the government weaken
the company's business or financial risk profile; or (3) BEH's
credit metrics weaken, such that adjusted FFO interest cover falls
below 2.5x and FFO/debt falls below 7% on a sustained basis.
The rating also considers the following environmental, social and
governance (ESG) factors.
BEH faces elevated carbon transition risk in its coal-fired generation
businesses. This risk is partially mitigated by BEH's increased
focus on renewable capacity expansion over the past three years and going
forward.
BEH faces moderate social risks in terms of worker health and safety in
relation to its construction and operation of power projects. This
is mitigated by BEH's established track record in power generation business,
as evidenced by the absence of material workplace accidents by the company
over the past ten years.
In terms of governance risk, Moody's has considered BEH's financial
policy, which is characterized by high capital spending and financial
leverage.
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in June 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Beijing Energy Holding Co., Ltd. (BEH) is the largest
power producer and district heating supplier for the Beijing municipality.
The company mainly engages in power generation across China and district
heating in the Beijing municipality, with a total installed capacity
of 24.1 gigawatts (GW) at the end of September 2019.
BEH is wholly owned by the Beijing State-owned Capital Operation
and Management Center (BSCOMC), which in turn is 100% owned
by the Beijing municipal government and supervised by the Beijing State-owned
Assets Supervision and Administration Commission (SASAC).
Panda Green Energy Group Limited engages in the development, investment,
operation and management of solar power plants and other renewable energy
projects. At 31 December 2019, the company reported 2.0
gigawatts of gross installed capacity through its subsidiaries and associates.
Listed on the Hong Kong Stock Exchange, Panda Green's major
shareholders, as of 18 February 2020 upon the completion of share
subscription, were: (1) Beijing Energy Investment Holding
(Hong Kong) Co., Limited (32.00%), a
wholly owned subsidiary of BEH; (2) China Merchants New Energy Group
(CMNE) and parties acting in concert with CMNE (15.47%);
(3) Qingdao City Construction Investment (Group) Co. Limited (13.59%);
and (4) China Huarong Asset Management Co., Ltd. (A3
stable, 13.59%).
The local market analyst for these ratings is Qingqing Guo, +86
(212) 057-4093.
REGULATORY DISCLOSURES
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.
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
