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Rating Action:

Moody's reviews Singapore Power and SP Power Assets for upgrade; and SP AusNet, SPI (Australia) Assets and Jemena for downgrade

Global Credit Research - 17 May 2013

Singapore, May 17, 2013 -- Moody's Investors Service has placed on review for upgrade Singapore Power's (SP) Aa3 issuer rating, SP Power Assets' (SPPA) Aa3 issuer and senior unsecured bond ratings, and SPPA's (P)Aa3 Senior Unsecured MTN Program domestic currency rating.

At the same time, Moody's has placed on review for downgrade the ratings of SP's Australian subsidiaries: SP AusNet (A1), 51% held by SP; SPI (Australia) Assets Pty Ltd (SPIAA, A3), wholly owned by SP; and Jemena (A3), wholly owned by SPIAA.

RATINGS RATIONALE

Moody's rating actions are in response to the divestment announced 17 May of 60% of SPIAA and 19.9% of SP AusNet to State Grid International Development Limited ("State Grid", unrated).

State Grid's parent company State Grid Corporation of China (Aa3 stable) has expressed strong commitment to its overseas investments as it supports the corporate objective of increasing its global presence and transferring its expertise in sophisticated, large scale power distribution.

Upon completion of the proposed divestment -- subject to the approval of regulatory authorities in Australia and China -- SP will retain 40% of SPIAA and 31.1% of SP AusNet. As a result of the divestment, both SP AusNet and SPIAA will no longer be consolidated in SP's financial statements.

"The divestment is credit positive for SP as, in addition to enhancing liquidity, it will provide SP with the ability to materially reduce leverage, such that FFO to interest would exceed 3.5x and net debt/fixed assets would fall below 60%, on a consistent basis," says Ray Tay, a Moody's Associate Vice President -- Analyst. "The company has not yet announced whether it intends to proceed with a debt reduction."

"The divestment will also reduce SP's exposure to Australia, where new rules governing the revenue-setting process for the utilities sector will challenge the sector's credit profile by reducing the predictability of regulated revenue. SP's Australian assets currently account for around 70% of the company's assets," says Tay, also the lead analyst for SP and SPPA. "Because SPPA's ratings benefit from uplift from SP and are also closely linked to SP's rating, they would be upgraded if the latter is upgraded," adds Tay.

Moody's further notes that the next electricity transmission and distribution (T&D) tariff reset in Singapore was to have taken place in April 2013, but no public announcement has been forthcoming.

Once the reset is finalized, Moody's will accordingly assess the credit implications for both SPPA and SP.

Moody's review of SP and SPPA's ratings for upgrade will focus on:

(i) successful receipt of regulatory approvals required to proceed with the transaction

(ii) whether SP plans to utilize sale proceeds for debt repayment or to pursue new investments, which may introduce new risks; and

(iii) the outcome of SPPA's tariff reset, which is expected to be announced in July this year.

The review will also incorporate the forthcoming release of SP and SPPA's full financial statements for FYE3/2013.

On the other hand, the review for downgrade of SP AusNet, SPIAA and Jemena reflects Moody's view that the likelihood of shareholder support for these entities will reduce following the divestment.

Currently, their ratings incorporate uplift, reflecting Moody's assessment of support by SP, given their strategic importance within the overall SP group. Whilst Moody's believes that State Grid will also be a supportive owner, it may be difficult as a practical matter for SP and State Grid to act in concert in the unlikely event that the Australian entities experiencing distress. The existing uplift may therefore no longer be appropriate.

Moody's review of SP AusNet, SPIAA and Jemena for downgrade will therefore focus on:

(i) the strategic importance of these Australian entities to SP after the divestment

(ii) the debt weighting -- for analytical purposes -- of the trust loans due by SPIAA to its shareholders after the transaction

(iii) the potential impact of any change of control clauses on the Australian entities' liquidity profiles

(iv) an assessment of State Grid's willingness and capacity to support its Australian subsidiaries after the acquisition.

Moody's expects to conclude its review in about three months.

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 sole electricity T&D assets through its fully owned subsidiaries, SPPA (assets owner) and SPPG (operator). SPPA owns the country's electricity T&D assets, which include 29,000km of underground cables in Singapore. SP also provides gas T&D services and market-support services, and holds the group's interests in the Australian T&D businesses.

SP AusNet is a listed infrastructure entity based in Melbourne. It owns (i) SPI Australia Group -- which owns one of Victoria's electricity and gas distribution networks -- and (ii) SPI PowerNet Pty Ltd (A1 RURD) -- which owns Victoria's electricity transmission network.

SPIAA owns -- through wholly owned subsidiary Jemena Ltd - a gas distribution network in NSW, electricity distribution network in Victoria and 50% interest in ActewAGL's distribution businesses. SPIAA also owns various other Australian gas pipelines and a 34% interest in United Energy Distribution (Baa2 stable).

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.

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

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
Infrastructure Finance Group
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
Infrastructure Finance Group
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 reviews Singapore Power and SP Power Assets for upgrade; and SP AusNet, SPI (Australia) Assets and Jemena for downgrade
No Related Data.

 

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