Enemalta shareholder Shanghai Electric gets ‘BBB’ rating

Credit rating agency Standard & Poor’s assigned a ‘BBB’ long-term corporate credit rating to Shanghai Electric Power (SEP), which owns a 33% stake in state utility company Enemalta.

SEP is one of the three major power generation companies serving the city of Shanghai and owns 100% of SEP Finance.

S&P said SEP was a “strategically important” subsidiary of state-owned China Power Investment Corporation (CPI), as its guarantor.

The company intends issuing bonds for working capital and general corporate purposes in SEP’s overseas business. “Our assessment of CPI’s group credit profile incorporates a ‘very high’ likelihood of extraordinary government support based on our view that the group has a ‘very important’ role and a ‘very strong’ link to the Chinese government.”

CPI, which the Chinese government wholly owns, is one of China’s five biggest power generation companies. CPI directly and indirectly owns 59.82% of SEP.

“We believe extraordinary government support could flow through the group to SEP if the company comes under financial stress.

“SEP’s stand-alone credit profile reflects its aggressive overseas expansion appetite and weak cash flows stemming from significant debt-funded capital expenditure,” said Standard & Poor’s credit analyst Gloria Lu.

“These weaknesses are offset by the company’s key position in Shanghai’s power market, accounting for 25% of the city’s electricity output, the modest geographic diversity of its assets and plant types, and an evolving tariff regime.”

Lu said the company is investing as a controlling shareholder in power generation in markets including Malta, Tanzania, Turkey, and Japan over the next three years.

“While we expect overseas assets to contribute no more than 10% of the consolidated cash flows in the period, the company could face risks associated with project execution, cost control, and currency management.

“In our view, SEP has yet to establish a solid record expanding overseas. The stable outlook reflects our expectation that SEP will continue to benefit from group support from CPI over the next 24 months and that extraordinary government support could continue to flow to the company through its parent, if needed.”