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Jan 24 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed China General Nuclear Power Corporationa€™s (CGNPC) a€˜A+a€™ Long-Term Foreign- and Local-Currency Issuer Default Rating and its senior unsecured debt rating at a€˜Aa€™. The Outlook is Stable. Simultaneously, Fitch has affirmed the ratings on Meiya Power Company Limited's (Meiya) USD350m senior unsecured notes, which are backed by a keepwell deed and a deed of equity interest purchase undertaking from CGNPC, and China Uranium Development Company Limited's (China Uranium) USD600m senior unsecured notes guaranteed by CGNPC, at 'A'.
Under Fitch's parent and subsidiary rating methodology, the IDRs on CGNPC are equalised with the Chinese sovereign (A+/Stable), reflecting substantial tangible state support with strong linkages. The linkages with the state are reinforced by the need for high levels of safety and sensitivity in nuclear power generation. CGNPCa€™s senior unsecured debt is rated a notch lower than its IDR due to its high level of secured debt.
The note issues from Meiya and China Uranium are rated at the same level as CGNPa€™s senior unsecured debt rating.
KEY RATING DRIVERS
Significant Tangible Support: CGNPC has received state support in a number of different forms - including equity injections, dividend waivers, interest subsidies, and tax rebates and concessions. The nuclear power generation sector also benefits from favourable policies, such as priority access to the power grid. Although Chinaa€™s National Development and Reform Commission has recently moved away from the a€œcost plus approacha€� and established a benchmark tariff for nuclear power at CNY0.43/kWh, this benchmark tariff is high and ensures a meaningful EBITDA margin. CGNPC also receives significant support from Chinaa€™s policy banks.
Protected Position: CGNPC has evolved into a leading entity in China that is responsible for building nuclear power generation capacity. CGNPCa€™s market share of nuclear-based generation capacity is about 50%, which will increase to about 60% once its planned nuclear power plants go into operation. A number of companies have equity stakes in nuclear power generation projects in China, but only the three licensed operators can operate these plants including CGNPC.
Fitch does not expect more entities to be licensed. Additionally, CGNPC is one of two entities that are allowed to import uranium into China.
High Financial Leverage: CGNPCa€™s standalone financial profile is stretched due to its extensive programme to build more capacity. CGNPC has eight operating units (of which two are at the associate level), and is in the process of constructing another 13. CGNPCa€™s leverage - funds flow from operations (FFO) to net adjusted debt a€“ is expected to significantly weaken from the current 8.4x as the construction phase of the plants will require an elevated level of capital expenditures, mostly financed by debt. The companya€™s leverage should improve after the completion of the projects between 2014 and 2016. Nonetheless, during the construction period, the companys liquidity position is supported by large committed credit facilities from domestic banks - as well as the aforementioned state support.
Robust Safety Record: CGNPCa€™s safety and operational record is robust. The company also actively engages overseas nuclear experts to enhance its operational practices. The most recent example was an emergency drill with the World Association of Nuclear Operators at a group of facilities at Daya Bay in southern China in September 2013. Electricite de France (A+/ Negative) and the Institute of Nuclear Power Operations also had representatives involved in the drill. CGNPCa€™s spent fuel disposal costs are fully funded by a levy introduced in 2010, which is passed through to consumers as part of tariffs. The company does not specifically set aside funds for nuclear-decommissioning costs, but Fitch does not view this as a major weakness due to the young age of CGNPCa€™s plants. The company has reasonable insurance coverage.
Negative: Future developments that may individually or collectively lead to negative rating action include
- Negative rating action on the Chinese sovereign
- Weakening linkages between CGNPC and the Chinese sovereign
Positive: Future developments that may individually or collectively lead to positive rating action include
- Positive rating action on the Chinese sovereign provided the linkages between CGNPC and the state remain intact.
The note issues from Meiya and China Uranium are tied to the senior unsecured rating of CGNPC. As such, any action on CGNPC's senior unsecured rating will result in a similar change to the rating of the notes.