TEXT-S&P: CLPH rtg unaffected by profit decline

Fri Aug 24, 2012 4:56am EDT

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(The following statement was released by the rating agency)

Aug 24 - Standard & Poor's Ratings Services said today that the ratings on CLP Holdings Ltd. (CLPH; A-/Stable/A-2; cnAA/cnA-1) are not affected by a profit decline in the first half of 2012. We have been expecting CLPH's financial performance in 2012 to take a hit. In our view, the company's cash flow adequacy ratios will revert to longer-term trend levels by 2013. We also note that CLPH's core Hong Kong electricity business is performing steadily.

CLPH's operating margin in the first half of 2012 fell 22.4% year over year. CLPH's Australia business reduced the company's operating cash flows following flood-related outages at its Yallourn plant, remediation costs, lower wholesale electricity prices, and higher corporate costs. The negative fair value movement of cap contracts further dampened net earnings. Coal supply shortages at CLPH's Jhajjar operations in India also undermined the bottom line.

We believe CLPH's ratio of funds from operations to total debt is likely to weaken to about 22%-24% by end-2012. Nevertheless, we expect improvement thereafter to come from a return to normal generation at Yallourn; A$257 million cash compensation from the Australian carbon policy implementation, which will suppress net debt; and solid output at Jhajjar due to improved coal supply arrangements.

In our view, the movement of wholesale electricity prices and demand in Australia and the coal supply performance under Jhajjar's contract with Coal India will be key drivers of the group's performance in 2013. We expect the operating costs of the Australian business to remain elevated before it completely integrates its energy acquisitions in New South Wales.

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