Hong Kong, September 30, 2021 -- Moody's Investors Service has changed the outlook to positive from stable
on ENN Energy Holdings Limited (ENN Energy).
At the same time, Moody's has affirmed ENN Energy's Baa2 issuer
rating and senior unsecured rating.
"The change in outlook to positive reflects our expectation that ENN Energy's
solid operating performance will help it achieve strong credit metrics
over the next two years," says Boris Kan, a Moody's Vice President
and Senior Credit Officer.
RATINGS RATIONALE
ENN Energy's Baa2 issuer rating is underpinned by (1) the company's established
position in the piped-gas sector, with geographically diversified
operations, (2) its large market share that often involves monopolistic
positions in gas distribution, backed by long-term concessionary
agreements, and (3) favorable industry trends and supportive government
policies that offer good growth potential.
Moody's expects ENN Energy to maintain its strong operating performance
in its downstream city gas business to support its robust credit metrics.
Specifically, Moody's believes positive momentum on the company's
standalone credit profile could arise if the company maintains strong
retail gas sales volume growth of over 15% per annum over the next
two years, such that its adjusted retained cash flow (RCF)/debt
is expected to exceed 28% and its debt/EBITDA is expected to fall
below 2.2x. These growth expectations reflect the high demand
for natural gas in China amid favorable industry policies and ENN Energy's
portfolio of high-quality and well-diversified city gas
distribution projects in China.
During the outlook review period, Moody's will also consider the
extent to which ENN Energy's credit profile benefits from the improving
regulatory regime, which will provide more visibility on the company's
cost pass-through mechanism and sustain the predictability and
stability of ENN Energy's business model and cash flows.
The rating also considers the following environmental, social and
governance (ESG) factors.
ENN Energy has low carbon transition risk within the China's utility
sector as the government aims to increase consumption of natural gas,
a cleaner fuel than coal, to control air pollution.
ENN Energy faces moderate social risk in terms of meeting worker health
and safety standards in the construction and operation of its city gas
projects.
ENN Energy's governance risk is moderate, with its founder Mr.
Wang Yusuo's ultimate ownership in, and commitment to, ENN
Energy a key consideration. In addition, the company's financial
policy is characterized by high capital spending and leverage.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the rating if it considers the positive momentum
on ENN Energy's improved credit profile to be sustainable.
Key financial metrics that Moody's would consider for an upgrade include
RCF/debt likely exceeding 28% and/or debt/EBITDA likely falling
below 2.2x on a sustained basis.
A rating downgrade is unlikely, given the positive rating outlook.
However, the outlook could return to stable if (1) the company's
credit metrics significantly weaken due to, but not limited to,
aggressive debt-funded acquisitions or unfavorable regulatory changes,
(2) its risk exposure from its unregulated businesses materially increases,
or (3) there are material transfers of interests from ENN Energy to other
investments under Mr. Wang, including to ENN Natural Gas.
The principal methodology used in these ratings was Regulated Electric
and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Listed on the Hong Kong Stock Exchange, ENN Energy Holdings Limited
(ENN Energy) (formerly known as Xinao Gas Holdings Ltd.) constructs
and operates facilities for the distribution of piped natural gas to residential,
commercial and industrial (C&I) customers in China. The company
also conducts wholesale gas business and provides integrated energy solutions
and other energy-related value-added products and services
to customers.
In 2020, ENN Energy generated a total revenue of RMB71.6
billion, of which 57% came from the sale of piped gas,
9% from connection fees, 25% from wholesale of gas,
2% from value-added businesses and 7% from integrated
energy.
As of 30 June 2021, the company was 32.68%-owned
by ENN Natural Gas Co., Ltd. (ENN Natural Gas) following
the completion of the group reorganization in September 2020. ENN
Natural Gas is owned by its founder, Mr. Wang Yusuo.
The remainder of the company was owned by financial institutions and the
public.
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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3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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The first name below is the lead rating analyst for this Credit Rating
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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
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
