(Repeat for additional subscribers)
April 8 (The following statement was released by the rating agency)
Fitch Ratings has affirmed State Grid Corporation of China's (SGCC) Long-Term
Foreign and Local Currency Issuer Default Ratings (IDR) at 'A+' with Stable Outlook. Fitch has
also affirmed SGCC's foreign-currency senior unsecured rating and the rating on bonds issued
by State Grid Overseas Investment (2013) Limited and guaranteed by SGCC at 'A+'.
KEY RATING DRIVERS
Equalised With the Sovereign: The ratings of SGCC are equalised with the China
sovereign (A+/Stable), the company's ultimate owner, as per Fitch's
Parent-Subsidiary Linkage methodology. The equalisation of SGCC's ratings with
the state takes into consideration its strategic importance to China as well as
strong financial and operational support extended to SGCC by the government via
both monetary and regulatory policy support.
Strategic Role in China: SGCC's monopoly concessions serve over 1.1 billion
users in 26 provinces, or 88% of the national territory, representing
approximately 80% of the nation's total electricity consumption. As the largest
purchaser, distributor and retailer of electricity, SGCC also holds a critical
role in the electricity value chain in China.
Evolving Regulatory Environment: Fitch considers the regulatory framework to be
highly beneficial to SGCC overall. Fitch expects the state to maintain tight
control on electricity transmission and distribution tariffs, preserving SGCC's
strong financial and strategic position. The regulatory framework could evolve
over the next decade, leading to a liberalisation of the retail segment that
could be preceded by a clearer transmission and distribution tariff framework.
Support from Government: SGCC has been receiving monetary and tax treatment
support from the state. Most importantly, the state ensures SGCC a reasonable
return on invested assets. During the next several years, the country will rely
on SGCC to develop the power grid to keep pace with economic growth, facilitate
changes to the coal-fired generation capacity and develop renewable energy
sources. The current tariff framework and support from the government will
continue to allow SGCC to maintain a robust financial profile.
Strong Standalone Profile: SGCC's financial profile is robust for its 'A+'
rating. Fitch expects SGCC's cash flow generation to remain strong, funds flow
from operations (FFO) adjusted net leverage to remain below 2.75x and the FFO
interest cover to be around 8.5x on a sustained basis (2.0x and 8.7x
respectively in 2013). The company also maintains healthy liquidity and a
favourable debt profile.
Strong Liquidity: SGCC's liquidity position stems from its robust internal cash
generation, its well-structured debt maturities, as well as its access to debt
markets. SGCC has committed credit facilities from major banks of over CNY1trn.
There is little secured debt (less than 5% of total consolidated debt). SGCC
also centrally manages the cash flow generated by its subsidiaries.
Negative: Future developments that may, individually or collectively, result in
negative rating action:
-A negative rating action on the sovereign
-Weakening linkages with the sovereign in conjunction with deterioration in FFO
adjusted net leverage to over 3.0x and FFO interest cover to less than 5.0x on a
Positive: Future developments that may, individually or collectively, result in
positive rating action:
-A positive rating action on the sovereign provided the linkages remain intact