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27 Apr 2011
Hong Kong, April 27, 2011 -- Moody's Investors Service has assigned a Ba2 rating to the perpetual
subordinated capital securities (the "hybrid") to be issued
by China Resources Power East Foundation Co Ltd and guaranteed by China
Resources Power Holdings Company Ltd. ("CR Power").
At the same time, Moody's has affirmed CR Power's Baa2
corporate family rating and Baa3 senior unsecured bond rating.
The outlook for all ratings is stable.
CR Power expects to use the proceeds from the hybrid to refinance existing
debt and fund capital expenditures and general working capital requirement.
RATINGS RATIONALE
"The Ba2 rating reflects the cumulative and deeply subordinated
nature of the hybrid," says Ivan Chung, a Moody's
Vice President and Senior Analyst.
In Moody's view, the hybrid will have sufficient equity-like
features to allow it to receive basket C treatment -- that
is 50% equity and 50% debt -- for the purposes of calculating
financial leverage. After the issuance, the company's
projected adjusted debt to capital ratio would be around 57-60%
over the next two to three years.
"Although these projected credit metrics remain weak for the Baa2
corporate family rating, the rising financial contributions from
its coal mining operations, its high operating efficiency,
and the credit uplift from its parent will offer some cushion against
any further deterioration in the operating environment," says
Chung.
"The hybrid will also strengthen the company's near-term
liquidity profile," Chung adds.
Rising coal prices and the absence of predictable cost pass-throughs
in a regulated tariff regime have eroded the profit margins of CR Power's
coal-fired power generation.
However, the situation is mitigated partly by the high hours of
utilization and the rise in contributions from the coal mining business.
Moody's expects the company's EBITDA margin to stay at about
25% over the next two to three years.
The ratings also factor in a one-notch uplift from the expectation
of support -- if needed -- from its parent, China Resources
Holdings Co Ltd ("CRH"; unrated), a conglomerate
owned by China's State Council. CRH has a stronger credit
profile than CR Power's.
The ratings outlook is stable, based on Moody's expectation
that CR Power will maintain its financial discipline as it continues to
expand and that it will maintain its strong access to bank funding.
Pressure for a ratings upgrade will be limited in the near team,
given the challenging nature of the operating environment.
However, the ratings could be downgraded if the company (1) fails
to meet its business plan targets and generate sufficient returns on its
new capital expenditures and investments; (2) takes on aggressive
debt-funded expansion projects or acquisitions; (3) suffers
a decline in profitability, such that the EBITDA margin falls below
20%; or (4) experiences a material impact to its operations
due to environmental concerns or new regulatory measures.
Such deterioration in the company's fundamentals would be accompanied
by weakening credit metrics of FFO/interest below 2.5x, debt/capitalization
above 60%-65%, and RCF/debt below 10%.
Furthermore, a material deterioration in the credit profile of parent
CRH or evidence of a weakening in CRH's support for CR Power would
also pressure the ratings.
The principal methodology used in rating China Resources Power East Foundation
Co Ltd was the Regulated Electric and Gas Utilities Industry Methodology,
published August 2009.
China Resources Power Holdings Company Limited is an independent power
producer that invests in, develops, owns, and operates
power plants and coal mines in China. It started building its first
power plant in 1994 and was listed on the Hong Kong Stock Exchange in
November 2003. As of December 31, 2010, it had 42 consolidated
operating plants with a total attributable installed capacity of 19,358MW.
Its 64%-shareholder, China Resources (Holdings) Co.,
Ltd., is a major Chinese conglomerate with business interests
in infrastructure and public utilities, consumer & retail,
pharmaceutical production & distribution, real estate development,
and financial services. CRH is 100%-owned by China
Resources National Corporation, which is ultimately owned by the
Chinese State Council.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
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a credit rating.
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Please see ratings tab on the issuer/entity page on Moodys.com
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Hong Kong
Ivan Chung
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
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Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's rates China Resources Power's perpetual capital securities Ba2
No Related Data.
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