[ET Net News Agency, 13 July 2018] S&P Global Ratings said today that the 2019-2023
development plans approved by the Hong Kong government are credit positive for power
utility companies in Hong Kong.
The credit rating agency believes higher capital expenditure (capex) and tariffs under
the development plans would enhance profitability and earnings for electricity suppliers
despite the reduced permitted return starting from 2018.
However, the ratings on these companies and their parents are not affected. That's
because S&P estimated that their credit metrics will remain within the range commensurate
with the current ratings.
It thinks a transparent and consistent regulatory regime, including the scheme of
control and the development plan review mechanism, underpins the strong business
fundamentals of the Hong Kong power utilities it rates: Hongkong Electric Co. Ltd. (HEC;
A-/Stable/--), CLP Power Hong Kong Ltd. (CLPP; A+/Stable/A-1), and Castle Peak Power Co.
Ltd. (AA-/Stable/A-1+), and their holding companies HK Electric Investments Ltd.
(02638)(A-/Stable/--) and CLP Holdings Ltd. (A/Stable/A-1)(00002).
The five-year development plans provide more certainty to the electricity suppliers and
facilitate their use of capital over the long term to meet the Hong Kong government's
clean energy target.
The government expects to reduce carbon intensity by 65%-70% by 2030 from the 2005
level, and increase the share of gas-based power to 50% by 2020. Key items approved under
the plans include advanced metering infrastructure, additional 550 megawatt gas-fired
unit, and an offshore liquefied natural gas terminal.
The higher capex under the new development plans would help the power utilities to grow
their asset base and compensate for the decline in profitability due to the reduction in
the permitted rate of return on assets to 8% from 9.99% in the new regulatory period from
2018.
CLPP's capex under the five-year development plan would total HK$52.9 billion, up 43%
from 2014-2018. HEC's capex would increase to HK$26.6 billion, up 96% compared with the
same period. The annual capex of these companies will be HK$2 billion-HK$3 billion more
than our base-case forecasts. In addition, the development plans lay out forecast for
tariff adjustments such that the higher capex and fuel costs are passed through in a
timely manner.
On 3 July 2018, CLPP and HEC announced that the Hong Kong government has approved the
2019-2023 development plans pursuant to the new Scheme of Control Agreements (SCA) signed
between the government and the utility companies in April 2017.
The new plans and the SCA for CLPP will be from 1 October 2018 to 31 December 2023,
while those for HEC will be from 1 January 2019, to 31 December 2023. (KL)