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Rating Action:

Moody's revises China General Nuclear's outlook to stable from negative

 The document has been translated in other languages

Global Credit Research - 12 Oct 2017

Hong Kong, October 12, 2017 -- Moody's Investors Service has changed to stable from negative the outlook on: 1) China General Nuclear Power Corporation's (CGN) A3 long-term issuer rating; 2) the A3 senior unsecured ratings of CGNPC International Limited and China Uranium Development Company Limited under CGN's guarantee; and 3) the Baa1 senior unsecured rating of China Clean Energy Development Limited guaranteed by CGNPC International Limited and supported by a Keepwell deed from CGN.

At the same time, Moody's has affirmed all ratings above.

RATINGS RATIONALE

"The change in ratings outlook to stable from negative reflects CGN's progress made in constructing its third generation nuclear units, thereby lowering the degree of execution challenges to a level that is more consistent with stable outlook," says Ada Li, a Moody's Vice President and Senior Analyst.

The change in outlook to stable also considers CGN's financial leverage which, while still high, is manageable within the ratings and stable outlook, considering the gradual decrease in business risk", Li adds.

CGN's A3 rating incorporates its baseline credit assessment (BCA) of ba3 and a six-notch uplift, based on Moody's assessment that the company will receive a very high level of support from the Chinese government (A1 stable) in times of need, under Moody's joint-default analysis approach for government-related issuers.

CGN's BCA of ba3 reflects the high level of financial leverage related to the company's aggressive debt-funded expansion, as it strives to meet the government's clean energy policy targets, under the country's 13th Five Year Plan.

For 2017-2019, Moody's projects that CGN's adjusted funds from operations to debt will be in the mid-single digit range, and its adjusted debt to capitalization will hover around 70%-73%.

CGN is in the process of building 8 nuclear units by 2020. While time to build these plants has staggered over a long period of time, reflecting the complexity associated with constructing nuclear power generation plants, as well as the technology employed, CGN has made reasonable strides in progressing the plants towards completion.

The BCA continues to reflect execution risk, albeit at a reduced level, associated with construction of nuclear power plants, the latter of which is complex and vulnerable to potential delays and cost overruns. Furthermore, the potential for continued material overseas expansion remain a key credit consideration for the BCA.

Moody's expectation of a very high level of support from the Chinese government to CGN as a commercial public state-owned enterprise — is based on the following factors:

(1) The central government's full ultimate ownership of the company,

(2) The company's high strategic importance to China's nuclear power industry and clean energy policies,

(3) CGN's high level of social influence and the significant reputational considerations, given its position as the country's leading nuclear power producer, and

(4) The track record of strong support from the government to CGN.

The stable outlook on CGN's issuer rating reflects Moody's expectations that: (1) the company will maintain its current credit profile and financial metrics; and (2) central government support is unlikely to change in the coming years, given CGN's national strategic importance, technological capabilities and status as a key investor in high profile overseas clean energy projects.

CGN's upward rating potential is limited, given the very high level of government support already incorporated into its rating, as well as the financial profile which is unlikely to materially strengthen in the next 2-3 years.

Nevertheless, Moody's could raise the company's BCA over time if: (1) CGN successfully deleverages, such that its funds from operation to debt exceeds 12% or its debt/capitalization falls below 65% on a sustained basis; and (2) the predictable and supportive regulatory regime in China for the company persists over time.

The rating is resilient to a weakening in the stand-alone credit profile, given the very high support level incorporated in the rating. That said, downward rating pressure could emerge if CGN: (1) incurs material cost overruns or significant delays in its projects; (2) is unable to obtain sufficient external funding to support its capex or refinance maturing debt; or (3) faces operational problems that lead to significant liabilities; or (4) engages in heavily debt-funded expansion.

Metrics that Moody's would consider for a downgrade include adjusted debt/book capitalization exceeding 75%-80% over a sustained period.

Because CGN's A3 rating incorporates a very high level of support from the Chinese government, the rating could come under downward pressure if the sovereign rating is downgraded, or if there is an adverse change in CGN's relative importance in the implementation of strategic national policy goals.

The methodologies used in these ratings were Regulated Electric and Gas Utilities published in June 2017, and Government-Related Issuers published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

China General Nuclear Power Corporation (CGN) is one of China's three nuclear power plant operators. It is the largest nuclear power company in China by total installed capacity of nuclear power projects in operation and under construction, with 21.5 GW in operation at end-June 2017 and 10.3 GW under construction as of the same date.

The company also has 23.8 GW of non-nuclear generating capacity, which includes 11.0 GW of wind-power capacity. Nuclear power generation accounted for 47.45% of its installed capacity.

CGN is 90% directly owned by the State-owned Assets Supervision and Administration Commission of China's State Council. The remaining 10% is owned by the Guangdong Government through Guangdong Hengjian Investment Holding Co Ltd (A3 stable).

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Ada Li
Vice President - Senior Analyst
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

Terry Fanous
MD-Public Proj & Infstr Fin
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

No Related Data.
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