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Announcement:

Moody's comments on CLP Holdings FY2011 results

02 Mar 2012

Hong Kong, March 02, 2012 -- Moody's Investors Service says that CLP Holdings Ltd's full-year results for 2011 have no immediate impact on the company's A2 issuer rating.

The rating outlook remains stable.

"CLPH showed good growth in revenue in 2011, mainly due to contributions from its acquisitions in New South Wales, and which were immediately earnings accretive," says Peter Choy, a Associate Managing Director at Moody's.

In FY2011, CLPH reported 57% revenue growth to HKD91.6 billion and 26% growth in operating profit -- before non-recurring items -- due to the increased contribution from TRUenergy in Australia, and the strength of the Australian dollar, after the acquisitions of the EnergyAustralia retail business and the Delta Western GenTrader contracts in March 2011.

With the NSW acquisitions, TRUenergy became one of the three leading energy players in Australia. The substantial rise in revenue and earnings in 2011 reflected an enlarged operating scale and the smooth integration of these operations.

During 2011, the Australian business accounted for 28% of total operating earnings -- before one-off items, up from 14% a year ago.

"Nevertheless, TRUenergy's earnings were negatively affected by a one-off impairment loss on its brown coal plant as a result of the introduction of the Australian government's clean energy legislation in late 2011. Therefore, CLPH's net profit decreased 10% to HKD9.3 billion," says Choy.

While the higher Australian contributions partly led to CLPH's unadjusted EBITDA before non-recurring items increasing by 31% to HKD 25.3 billion, its unadjusted EBITDA margin fell to 28% from 34% in 2010, as the Australia operations showed lower profitability than the Hong Kong operations.

"In addition, CLPH's substantial business growth came with higher leverage as its USD2.05 billion NSW acquisitions are largely debt funded," adds Choy. "Nevertheless, the weakening in credit metrics in 2011 was within Moody's expectations."

As a result, total bank loans and other borrowings rose by HKD20.8 billion to HKD65.5 billion in 2011, mainly attributed by NSW acquisitions and loan drawdown for Jhajjar plant construction in India.

The group arranged HKD28.2 billion in equivalent banking facilities and raised HKD7.4 billion in debt in the bond market to meet its financing requirements. After incorporating Moody's adjustments, adjusted debt to book capitalization rose to around 48% from 41% in 2010. Nevertheless, the weakening in credit metrics for FY2011 was in line with Moody's expectations.

CLPH's liquidity remained sound in 2011 with free cash of HKD3.9 billion and undrawn banking facilities of HKD24.4 billion as of 31 December 2011. This amount should be sufficient to cover its near-term re-financing needs, including short-term debt of HKD12.6 billion.

In addition, the potential IPO of TRUenergy would provide extra liquidity to the group and lower its reliance on debt financing when TRUenergy recycles their capital back to CLPH after listing.

Looking ahead, CLPH's Hong Kong electricity business will remain the foundation of group, and it accounted for 68.3% of total operating earnings in 2011. The regulated business is supported by stable earnings from the Scheme of Control, which permitted return covers net fixed assets value after depreciation with pass-through of fuel cost and operating costs.

However, the group reached a lower than expected tariff increase for 2012 with the shortfall between proposed and actual tariff hikes compensated by rent and rate rebates. The group may need to propose a higher tariff increase in next tariff review given the uptrend fuel costs and increasing permitted capital investments to meet the government's new fuel mix target.

But, its ability to raise tariffs could be tested by the political and social climate. In particular, Moody's does not expect special rebates to compensate for the shortfall between proposed and actual tariff hikes in the future as was the case in the tariff review for 2012.

CLPH's business outside Hong Kong will continue to grow. TRUenergy aims to strengthen its portfolio through further integration of the retail business and better management of fuel costs in its generation business. In addition, CLPH is expected to complete the acquisition of a 17% stake in the Yangjiang nuclear project in China, subject to regulatory approval.

The ratings outlook is stable, reflecting Moody's expectation that CLPH will successfully integrate the NSW business and improve its financial profile. The outlook also reflects Moody's expectation that the company will make no major overseas acquisitions in the next 12 months.

The possibility of upward rating pressure is limited over the near term, given the temporary weakness in credit metrics, and it will need 12-18 months to return its financial profile to pre-acquisition levels.

Downward rating pressure will emerge if TRUenergy or other overseas operations perform materially below Moody's expectations, or if CLPH makes any additional majority debt-funded acquisitions, such that its business and financial risk expands.

The key credit metrics that Moody's would consider for a downgrade include FFO/debt falling below 15-20%, debt/capitalization rising above 50%, FFO/interest falling below 4-4.5x (consolidated), or CLP Power's cash flow contribution falling below 50% of the group total.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in August 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

CLP Holdings Ltd, headquartered and listed in Hong Kong, operates its electric utility business through its 100%-owned subsidiary, CLP Power Hong Kong Ltd. The group also has a growing portfolio of electricity generation investments across Asia Pacific.

CLP Power Hong Kong Ltd is a vertically integrated electricity generation, transmission, and distribution company. It is regulated by the Hong Kong SAR Government under the Scheme of Control Arrangement and accounts for the majority of CLPH's operating cash flow. The company has a de facto monopoly over Kowloon and the New Territories, which together account for 80% of Hong Kong's population .

Peter Choy
Associate Managing Director
Corporate Finance Group
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
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077

Moody's comments on CLP Holdings FY2011 results
No Related Data.
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