Moody’s reviews CLP’s ratings for possible downgrade

Moody’s reviews CLP’s ratings for possible downgradeApproximately US$2,100 million of debt securities affected

Hong Kong, December 15, 2010 — Moody’s Investors Service has placed on review for possible downgrade the A2 issuer rating of CLP Holdings Ltd (CLPH), the A1 issuer rating of CLP Power Hong Kong Ltd (CLP Power) and the A1 senior unsecured debt rating of CLP Power Hong Kong Financing Ltd. The P-1 short-term ratings have also been placed on review for possible downgrade.
This rating action follows the announcement that TRUenergy (unrated), the wholly-owned subsidiary of CLPH, will acquire the EnergyAustralia retail business, the Delta Western GenTrader bundle and two Power Station Development sites (Marulan sites & Mt Piper extension) as part of the electricity privatization process that is being undertaken by Australia’s New South Wales government.
Total consideration for the acquisition of A$2.035 billion will be initially funded by a combination of approximately A$1.2 billion of 18-month bridge facility, and A$0.835 billion through an equity contribution from CLPH.
“The review for downgrade reflects the majority debt-funded nature of the transaction, which follows the previously announced co-investment in the 6,000 megawatt Yangjiang Nuclear Power Station”, says Jennifer Wong, a Moody’s AVP/Analyst, adding “These transactions will weaken CLPH’s consolidated financial profile to a level that may not be consistent with current ratings.”
“The significant size of the transaction relative to CLPH’s balance sheet, and the potential integration challenges, are additional considerationsfor the downward rating review”, says Wong.
“Strategically, the acquisition of the EnergyAustralia retail business will enhance TRUenergy’s overall scale and market position, as well as providing immediate diversity benefit through economies of scale” Wong says, adding “acquiring Delta Western GenTrader bundle will also increase TRUenergy’s long term electricity supply sources given its increased electricity demand”.
In this review, Moody’s will evaluate the final funding arrangement for the acquisition and the prior investment and their impact on CLPH’soverall business and financial risk profiles. The review of CLP Power will be dependent on the outcome of the rating review of CLPH, as the rating are closely linked.
The last rating actions with respect to these entities were taken on 28July 2008, when Moody’s affirmed the A2 issuer rating of CLPH, the A1 issuer rating of CLP Power and the A1 senior unsecured debt rating of CLP Power Hong Kong Financing Ltd with a stable outlook.
The principal methodology used in this rating was Moody’s Regulated Electric and Gas Utilities published in August 2009.
CLP Holdings Limited, headquartered and listed in Hong Kong, operates its electric utility business under its 100%-owned subsidiary, CLP Power Hong Kong Ltd. The group also has a growing portfolio of electricity generation investments across Asia Pacific.
CLP Power Hong Kong Ltd is a vertically integrated electricity generation, transmission and distribution company. It is regulated by the Hong Kong SAR Government under the Scheme of Control and accounts for the majorityof CLPH’s operating cash flow. It has a de facto monopoly over Kowloon and the New Territories areas which altogether account for over 70% of Hong Kong’s electricity demand.
TRUenergy is a wholly-owned subsidiary of CLPH and is one of Australia’slargest integrated energy businesses. TRUenergy generates electricityand retails electricity and gas to over 1.26 million residential and business users in Australia.