Singapore, August 23, 2013 -- Moody's Investors Service, ("Moody's") has
removed the Aa3 issuer ratings of Singapore Power (SP) and its wholly
owned subsidiary, SP PowerAssets (SPPA) from review for possible
upgrade and has revised the outlook to positive. Moody's
has also confirmed SP's Aa3 issuer rating, SPPA's Aa3
issuer and senior unsecured ratings, and SPPA's senior unsecured
MTN program (local currency) rating of (P)Aa3. The actions conclude
the review for possible upgrade initiated by Moody's in May 2013.
Moody's had placed the ratings on review for upgrade on 17 May,
after SP said that it would partially divest its equity interest in two
Australian subsidiaries.
In particular, the company said it would sell: 1) a 19.9%
stake in SP AusNet (SPN, A1 review for downgrade), and 2)
a 60% shareholding in SPI (Australia) Assets Pty Ltd (SPIAA,
A3 review for downgrade) to State Grid International Development Limited
(SGID, unrated). SGID is a wholly owned subsidiary of State
Grid Corporation of China (SGCC, Aa3 stable).
Upon completion of the proposed divestments -- which are
subject to the approval of regulatory authorities in Australia and China
-- SP will retain 31.1% of the equity in SP
AusNet and 40% in SPIAA.
RATINGS RATIONALE
"The divestment is credit positive for SP because it will enhance
its liquidity position and allow it to materially reduce its leverage,
thereby boosting its credit metrics," says Ray Tay,
a Moody's Assistant Vice President and Analyst.
"Although SP's financial metrics are projected to cross the previously
stated upgrade triggers, the immediate upgrade pressure has reduced
given the potential that proceeds from the divestment may not be used
to reduce leverage to a level that would be consistent with the higher
rating. This is also attributable to the potential for SP to make
further acquisitions. " adds Tay, who is also the Lead
Analyst for SP and SPPA.
SP has a sizeable amount of cash remaining after some debt repayment and
special dividends to its shareholder and has said that it may use part
of the divestment proceeds for acquisitions, should opportunities
arise. The sizeable capex required for SP's Singapore operations
also constrains its ratings.
Moody's believes that the required regulatory approvals will be
granted, although the timing in Australia could depend on the upcoming
federal elections.
The divestment will also allow SP to refocus on its core market of Singapore,
where SPPA has recorded better margins than SP's Australian operations.
Moody's believes that over the medium term, the Singapore
market offers greater regulatory certainty than Australia.
The regulatory environment for SPPA in Singapore will remain stable until
at least April 2018 which is the start of the next five-year regulatory
period. In contrast, Moody's sees potential regulatory
uncertainty for the company's Australian operations, particularly
in relation to proposals by the Australian Energy Market Commission which
would likely result in more volatile revenues and to lower the rates of
return on the company's regulated utility networks in Australia.
SP is a government-related issuer, which benefits from an
uplift of four notches included in its final Aa3 rating. Moody's
rates the Singapore government's (Aaa stable) willingness to support SP
in times of need as "very high," reflecting the company's
role in managing and operating the country's only electricity transmission
and distribution network.
On the other hand, Moody's assessment of dependence is only
"high" because of the high correlation between the credit profiles of
SP and Singapore.
In terms of SPPA's rating, Moody's believes the company's
rating is closely linked to that of SP's, because as a fully
owned subsidiary of SP, SPPA is likely to receive support from the
Singapore government through SP.
During the next 12 to 18 months, Moody's will monitor the
ratings of SP and SPPA with a focus on the following:
(1) Successful approval of the divestment by Australia regulators;
(2) Further updates from SP on its plans to utilize the sales proceeds
for debt repayment or to pursue new investments, which may introduce
new risks; and
(3) SP's capex plans for its Singapore operations and its ability
to outperform its regulatory targets as it has in the past.
The methodologies used in these ratings were Regulated Electric and Gas
Networks published in August 2009, and Government-Related
Issuers: Methodology Update published in July 2010. Please
see the Credit Policy page on www.moodys.com for a copy
of these methodologies.
SP is fully owned by Temasek Holdings (Private) Ltd (Aaa stable),
which in turn is a sovereign wealth fund of the Government of Singapore.
SP owns and manages Singapore's only electricity transmission and distribution
assets through its fully owned subsidiaries, SPPA -- the owner
of the assets, which include more than 21,000 kilometres of
primarily underground cable circuits -- and SPPG,
the operator.
SP, through its subsidiaries, also provides gas transmission
and distribution services and market-support services, and
holds the group's interests in its Australian transmission and distribution
operations.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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.
Ray Tay
Asst Vice President - Analyst
Project & Infrastructure Finance
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Patrick Mispagel
Associate Managing Director
Project & Infrastructure Finance
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (65) 6398-8308
Moody's changes Singapore Power's rating outlook to positive
