Castle Peak Power Finance Company Limited -- Moody's affirms ratings of CLP Holding, CLP Power and CAPCO; outlook stable
Rating Action: Moody's affirms ratings of CLP Holding, CLP Power and CAPCO; outlook stable
Global Credit Research - 18 Aug 2020
Hong Kong, August 18, 2020 -- Moody's Investors Service has affirmed CLP Holdings Limited's (CLPH) A2 issuer rating and P-1 short term issuer rating.
Concurrently, Moody's has affirmed the ratings of CLPH's operating subsidiaries in Hong Kong SAR, and the issuing entities of these operating subsidiaries' perpetual subordinated guaranteed capital securities and medium-term note (MTN) programs. The affected entities are CLP Power Hong Kong Limited (CLPP), CLP Power HK Finance Ltd., CLP Power Hong Kong Financing Limited, Castle Peak Power Company Limited (CAPCO), and Castle Peak Power Finance Company Limited.
All ratings outlook remains stable.
"CLPH's A2 rating continues to reflect its stable credit profile, with the predictable cashflow from its regulated Hong Kong SAR operations providing a buffer against its more volatile overseas businesses amid the coronavirus pandemic," says Ivy Poon, a Moody's Vice President and Senior Analyst.
"We expect the company's credit metrics will remain appropriate for its rating, although they will weaken moderately amid lower regulated returns in Hong Kong SAR and weaker earnings from overseas markets," adds Poon.
A complete list of affected ratings appears toward the end of this press release.
RATINGS RATIONALE
CLPH's Hong Kong SAR operations - undertaken by CLPP (A1 stable) and CAPCO (A1 stable) -- are the backbone of its business, contributing close to 70% of the company's funds from operations.
The Hong Kong SAR operations generate predictable revenue at a fixed return up to 2033 under a well-established regulatory environment. The current regulatory framework also allows a recovery in revenue shortfall, insulating the operations from demand risk.
At the same time, CLPH has a portfolio of overseas investments that faces regulatory uncertainty and greater market risk. These investments are also exposed to demand risk and receivable collection risk, with sluggish power demand and weakening economic conditions likely to temper their operating performance in 2020.
Accordingly, Moody's estimates that CLPH's adjusted funds from operations (FFO)/ debt will moderate to 25%-28% during 2020-22 from 35% in 2019. Similarly, CLPP's and CAPCO's adjusted FFO/debt will decline to 24%-26% and 18%-20% from 30% and 23% over the same period.
As an integrated utility, CLPH and CLPP faces moderate carbon transition risk, while CAPCO is subject to elevated carbon transition risk as a pure generation company with meaningful exposure to coal fired power. That said, the companies are undergoing energy transition by expanding their low-carbon generation, and have always complied with environmental policies in their respective jurisdictions.
Moody's expects CAPCO will remain highly strategic to CLPP given its irreplaceable position by supporting 70% of CLPP's power generation under a robust power purchase agreement. Such close linkage is reflected in the one-notch parental uplift in CAPCO's A1 ratings.
The stable ratings outlook of CLPH reflects Moody's expectations that (1) the company's Hong Kong SAR operations will remain stable; and (2) the risks associated with its overseas businesses will remain manageable, at least over the next 12 months.
The stable ratings outlook of CLPP and CAPCO reflects Moody's expectation that (1) the companies will maintain their low-risk business profile under a stable regulatory environment in Hong Kong SAR over the next 12 months, and (2) the strategic relationship between CLPP and CAPCO will remain intact.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
CLP HOLDINGS LIMITED
An upgrade is unlikely in the near term, given its broadly stable credit quality, with lower regulatory returns of the Hong Kong SAR operations and challenging overseas operations.
The key credit metrics that Moody's would consider for an upgrade include funds from operations (FFO)/debt above 38% and debt/capitalization below 30%, both on a sustained basis.
The rating could be downgraded if there is a substantial increase in CLPH's debt or a significant deterioration in its overseas operations.
The key credit metrics that Moody's would consider for a downgrade include FFO/debt below 20% and debt/capitalization above 50%, both on a sustained basis.
CLP POWER HONG KONG LIMITED
An upgrade is unlikely in the near term, given the stable regulatory environment and the company's predictable financial profile.
The key metrics that Moody's would consider for an upgrade include funds from operations (FFO)/debt above 35% and debt/capitalization below 30% on a sustained basis.
CLPP's issuer rating could be downgraded if its credit strength deteriorates substantially because of adverse changes in the regulatory environment and a weakening in its operator profile.
The key metrics that Moody's would consider for a downgrade include FFO/debt below 20% and debt/capitalization in excess of 45% on a sustained basis.
In addition, a material deterioration in the credit profile of CLPH could trigger a review of CLPP's issuer rating.
CASTLE PEAK POWER COMPANY LIMITED
An upgrade is unlikely since CAPCO's rating it is already at par with CLPP's rating.
An upgrade of CLPP's rating, which is unlikely in the near term, could potentially trigger a review of CAPCO's ratings.
CAPCO's standalone credit profile be raised if FFO/debt exceeds 25% or debt/capitalization falls below 55% on a sustained basis
A downgrade of CLPP's rating will result in a downgrade of CAPCO's rating. A material weakening in CAPCO's strategic importance to CLPP, for example, in the unlikely event of the termination of the PPA, could also lead to a downgrade.
CAPCO's standalone credit profile be lowered if FFO/debt falls below 15% or debt/capitalization exceeds 75% on a sustained basis.
Moody's will also reassess the impact on CAPCO's rating in the event of significant changes to the terms and conditions of CAPCO's shareholder capital agreement.
The principal methodology used in these ratings was Regulated Electric and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
CLP Holdings Limited, headquartered and listed in Hong Kong, operates a regulated electricity business through its subsidiaries, CLP Power Hong Kong Limited and Castle Peak Power Company Limited. CLP Power is an integrated utility and Castle Peak Power is CLP Power's electricity generation arm. In addition to the Hong Kong business, CLPH has a portfolio of electricity investments across Asia-Pacific.
LIST OF AFFECTED RATINGS
Outlook Actions:
..Issuer: Castle Peak Power Company Limited (CAPCO)
....Outlook, Remains Stable
..Issuer: Castle Peak Power Finance Company Limited
....Outlook, Remains Stable
...Issuer: CLP Holdings Limited
....Outlook, Remains Stable
..Issuer: CLP Power HK Finance Ltd.
....Outlook, Remains Stable
..Issuer: CLP Power Hong Kong Financing Limited
....Outlook, Remains Stable
..Issuer: CLP Power Hong Kong Limited
....Outlook, Remains Stable
Affirmations:
..Issuer: Castle Peak Power Company Limited (CAPCO)
.... Long-term Issuer Rating (Foreign and Local Currency), Affirmed A1
.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-1
..Issuer: Castle Peak Power Finance Company Limited
....Long-term Backed Senior Unsecured Medium-Term Note Program (Local Currency), Affirmed (P)A1
....Backed Other Short Term Program (Local Currency), Affirmed (P)P-1
....Long-term Backed Senior Unsecured Regular Bond/Debenture (Local Currency), Affirmed A1
..Issuer: CLP Holdings Limited
.... Long-term Issuer Rating (Foreign and Local Currency), Affirmed A2
.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-1
..Issuer: CLP Power HK Finance Ltd.
....Long-term Backed Pref. Stock (Local Currency), Affirmed A3
..Issuer: CLP Power Hong Kong Financing Limited
....Long-term Backed Senior Unsecured Medium-Term Note Program (Foreign and Local Currency), Affirmed (P)A1
....Backed Other Short Term Program (Foreign Currency), Affirmed (P)P-1
....Long-term Backed Senior Unsecured Regular Bond/Debenture (Foreign and Local Currency), Affirmed A1
..Issuer: CLP Power Hong Kong Limited
.... Long-term Issuer Rating (Foreign and Local Currency), Affirmed A1
.... Short-term Issuer Rating (Foreign and Local Currency), Affirmed P-1
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.
These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.
Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.
Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.
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.
Ivy Poon 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 Yian Ning Loh Associate Managing Director Structured Finance Group 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
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