[ET Net News Agency, 29 May 2018] S&P Global Ratings today affirmed its 'A' long-term
and 'A-1' short-term issuer credit ratings on CLP Holdings Ltd (00002). The outlook on the
long-term rating is stable.
The credit rating agency affirmed the rating because it expects CLP Holdings to steadily
grow its cash flows and continue to reduce leverage over the next 24 months. CLP Holdings'
Australia business has had a favorable wholesale electricity demand-supply equation over
the past year and is likely to remain a major contributor to the improvement in the
company's credit profile.
CLP Holdings' 17% stake in a nuclear plant in Yangjiang, China, should also contribute
dividends of HK$800 million from 2019. These strengths will be tempered by the reduced
rate of return under CLP Holdings' new scheme of control agreement (SCA) for the Hong Kong
regulated business as well as higher coal prices that have dented margins for the mainland
China business.
S&P expects the lowered permitted rate of return under the new SCA to have a moderate
impact on CLP Holdings' financial performance. The new agreement will be effective from
October 2018 and will permit a rate of return of 8%, compared with 9.99% now.
However, the SCA lengthens the term of the scheme to 15 years from 10 years, improving
long-term visibility. The new scheme also has some favorable features, such as monthly
fuel cost adjustments that take into account the price of fuel used in the preceding three
months. This mechanism could reduce CLP Holdings' cash flow volatility. The stable
regulated utility businesses in Hong Kong will also continue to support the company's
strong business risk profile. (KL)