Rating Action: Moody's changes Mong Duong Finance's outlook to positive; affirms Ba3 senior secured ratingGlobal Credit Research - 19 Mar 2021Hong Kong, March 19, 2021 -- Moody's Investors Service has affirmed Mong Duong Finance Holdings BV's Ba3 USD senior secured notes rating.At the same time, Moody's has revised the rating outlook to positive from negative.The rating action follows Moody's affirmation of Vietnam's Ba3 ratings with an outlook revision to positive from negative on 18 March.For full details on the sovereign rating action, please refer to this press release:https://www.moodys.com/research/Moodys-affirms-Vietnams-Ba3-rating-changes-outlook-to-positive--PR_441760 "The rating action on Mong Duong Finance reflects our assessment that the notes will benefit from Vietnam's improving credit quality, given the constraint by the sovereign rating," says Mic Kang, a Moody's Vice President and Senior Credit Officer. "The government's commitment through a guarantee and undertakings will help the underlying power project mitigate risks stemming from its concentration in a single offtaker and a sole coal supplier, thereby allowing the project to continue benefiting from its fully-contracted cash flow," adds Kang. Mong Duong Finance is a finance entity whose credit profile is closely linked to AES Mong Duong Power Company Limited (MDP), which owns and operates the underlying power project, because of several structural features. MDP operates with the assurance that the government will make reliable and timely payments to MDP, if and when required, under the Government Guarantee and Undertaking Agreement (GGU) and the Build Operate Transfer (BOT) contract. RATINGS RATIONALE The Ba3 rating reflects MDP's fully contracted cash flow under a long-term power purchase agreement (PPA). The PPA contains a robust tariff structure allowing for the recovery of costs and realization of capital returns, so long as material offtaker and fuel supplier risks do not emerge. The government's commitment to MDP under the GGU and the BOT contract supports the predictability of the company's operating cash flow, while mitigating MDP's risk exposure to its single offtaker, Vietnam Electricity, and its sole coal supplier, Vietnam National Coal-Mineral Industries Group (Vinacomin). Under the GGU and the BOT contract, the government guarantees the performance of all payment obligations and all financial commitments of Vietnam Electricity and Vinacomin, and compensates MDP for any operational difficulties stemming from a failure of coal supply by Vinacomin. MDP's ownership structure will change, subject to approvals from stakeholders -- including the government -- following The AES Corporation's (Ba1 stable) announcement that it signed an agreement to sell its entire 51% stake in MDP to a consortium led by a US-based investor in January 2021. At the same time, the terms of the notes require new owner(s) to meet the conditions for a qualified transferee, which include (1) a tangible net worth of at least $300 million or ratings of Ba1 or above by Moody's or other rating agencies, and (2) substantial experience operating fossil fuel power plants. Moody's expects MDP's average debt service coverage ratios to be 1.4x-1.5x during the tenor of the notes. This level of credit metrics will support MDP's credit quality. In terms of environmental, social and governance (ESG) factors, Moody's has considered that MDP's coal-fired power project is exposed to carbon transition risk and tightening air pollution regulations. Nevertheless, MDP's exposure to these environmental risks should not increase materially, as long as the government compensates most incremental costs resulting from unfavorable regulatory changes, including environmental laws and regulations, through direct payments or adjustments of the tariff structure under the BOT contract. MDP's exposure to social risk mainly stems from health and safety requirements, but is mitigated by MDP's insurance coverage encompassing property damage, business interruptions, public and product liability and employer's liability. MDP has a good operating track record, and certain project finance features under the USD notes and project loans help Mong Duong Finance maintain adequate debt servicing capability. However, governance risk could increase if the sponsor profile or commitment declines as a result of the potential ownership change. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGThe positive outlook on the rating mirrors the positive outlook on Vietnam's sovereign rating, given the government's commitment to MDP's power project. Moody's could upgrade the rating if Vietnam's sovereign ratings is upgraded; and at the same time, (1) the government's strong commitment to MDP's power project remains intact; (2) MDP maintains its solid operations and financial leverage; and (3) MDP's sponsor profile does not weaken. Moody's could change the outlook to stable or take an adverse rating action if (1) Moody's takes a negative rating action on the sovereign; (2) MDP's debt service coverage ratio falls below 1.1x during the amortization period; and/or (3) MDP's sponsor profile weakens as a result of the potential ownership change, contrary to Moody's expectation. The principal methodology used in this rating was Power Generation Projects Methodology published in July 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1236893. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. Mong Duong Finance Holdings BV is the issuer of the USD notes. Mong Duong Finance is indirectly owned by (1) AES Mong Duong Holdings B.V. (51%), a subsidiary of The AES Corporation (Ba1 stable); (2) PSC Energy Global Co., Ltd (30%), a subsidiary of POSCO Energy, and which is in turn owned by POSCO (Baa1 stable); and (3) Stable Investment Corporation (19%), which is owned by China Investment Corporation, a sovereign wealth fund of the Government of China (A1 stable). This shareholding structure is the same as that for AES Mong Duong Power Company Limited (MDP). MDP is a limited liability joint venture that owns and operates two sub-critical coal-fired power plants with a total capacity of 1,120 megawatts. The plants are located around 220 km east of Hanoi (50 km north-east of Ha Long City in Quang Ninh Province). 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. 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