[ET Net News Agency, 5 December 2018] Moody's Investors Service said that its outlook
for the broad power sector in Asia through 2019 is stable, supported by steady cash flows,
the gradual pace of regulatory changes, a gradual transition to a low carbon economy and
sufficient mitigants against capital-market volatility.
"We expect most rated power companies will report stable operating cash flow over the
next 12-18 months, helped by stable or increasing dispatch volumes or timely cost
pass-throughs amid a gradual pace of regulatory changes, thus supporting their credit
quality," said Mic Kang, a Moody's Vice President and Senior Credit Officer.
"However, regulatory challenges are starting to adversely affect the credit metrics of
Korean and Japanese companies, because of prolonged delays in cost pass-throughs in Korea
and growing competition amid market deregulation in Japan," adds Kang.
Moody's conclusions are contained in its just-released report on Moody's outlook for the
Asian power sector, titled "Power - Asia: 2019 outlook stable, with steady cash flow
offset by regulatory challenges," which is authored by Kang.
Moody's report points out that growing power demand or timely cost pass-throughs will
also mitigate the strain on cash flows from higher generation costs and higher capital
spending for most rated power companies in Asia.
In addition, regulations will remain broadly stable as most Asian geographies implement
regulatory changes gradually, supporting cash flow stability.
Business conditions will be tougher in 2019 in certain countries, because of regulatory
challenges and, to a lesser extent, trade protectionism potentially slowing demand growth.
The main regulatory risk is timely cost pass-throughs in certain countries, particularly
China (A1 stable), Indonesia (Baa2 stable) and Korea (Aa2 stable). In addition, there is
uncertainty associated with the effects of deregulation in Japan (A1 stable).
However, Moody's expects power demand growth in China and Indonesia will continue to
support cash flow stability or growth for most rated power companies in those countries.
By contrast, Korea's major power companies increasingly rely on debt to fund their
capital spending, because of the continued low likelihood of timely cost pass-throughs
amid strengthening safety requirements for nuclear operations and the Korean government's
energy policy to gradually move away from nuclear and coal. As such, their credit metrics
are weakening.
And in Japan, Moody's expects some power companies will find it difficult to strengthen
their weak credit metrics amid increasing competition and weakening monopolistic market
positions. (KL)