(Repeat for additional subscribers)
Jan 9 (The following statement was released by the rating agency)
Fitch Ratings has downgraded Australia-based SP Ausnet's Long-Term Issuer Default
Rating (IDR) to 'BBB+' from 'A-'. The Rating Watch Negative (RWN) on all the ratings has been
removed, and a Stable Outlook has been assigned to the Long-Term IDR. A full list of rating
actions can be found at the end of this release.
The rating actions follow the reduction of Singapore Power Ltd's (Singapore
Power; A/RWP) stake in SP Ausnet with the sale of a 19.9% interest to State Grid
International Development Limited (SGID), a wholly owned subsidiary of the State
Grid Corporation of China (SGCC; A+/Stable) for AUD824m, which was completed on
3 January 2014. The sale has reduced Singapore Power's stake in SP Ausnet to
31.1% from 51%. SGID also purchased 60% of SPI (Australia) Assets Pty Ltd
(SPIA), Singapore Power's wholly owned subsidiary that holds its Australian
infrastructure and energy assets other than SP Ausnet.
The downgrade results from the removal of the one-notch rating uplift previously
accorded to the ratings of SP Ausnet on account of Singapore Power's majority
51% ownership in SP Ausnet and the sizeable earnings contribution from SP Ausnet
to Singapore Power.
KEY RATING DRIVERS
Transparent and Mature Regulation: SP Ausnet's revised ratings continue to be
supported by the regulated nature of its business (transmission, electricity and
gas distribution), the staggered regulatory resets across its three network
businesses in Victoria state, which reduces regulatory risk, and a transparent
and mature regulatory environment under which it operates. The ratings also
reflect the relatively good level of interest coverage (2.7x in FY13), which
compares well with Australian utility peers rated in the high-BBB and low-A
category levels. However, the company's leverage as measured by net debt to
Regulatory Asset Base is expected to remain at around 70%, which is high
relative to peers rated at the 'A-' level.
Risk from Bushfire Compensation: Compensation issues resulting from the 2009
Victorian bushfires could be a risk to SP AusNet's standalone credit profile
over the medium term should the amount of compensation exceed that covered by
the company's insurance, although we believe that SP AusNet's regulatory
determination may mitigate these risks to some extent by allowing SP AusNet to
pass through certain costs and damages in excess of insurance payouts. As it is
not possible to determine the extent of the potential liability at present, we
would treat any material adverse outcome as an event risk and take appropriate
rating action at the time the damages crystallise.
Tax Dispute: A further potential risk over the medium term relates to primary
tax liabilities for prior years under dispute with the Australian Taxation
Office. As at 30 September 2013 SP Ausnet's net additional cash exposure is
approximately AUD83m, although this amount is not significant considering the
scale of SP Ausnet's earnings and its asset base.
Potential Regulatory Changes: All regulated utilities in Australia - including
SP AusNet - over the medium term are faced with proposed changes aimed at
increasing the efficiency of the regulatory process. We expect the Australian
Energy Regulator to have increased power in determining future regulatory
outcomes, which could lead to a reduction in capital and operating expense
allowances and the rate of return earned on the regulated assets by the
utilities. These changes would apply to SP Ausnet's business in 2016, with the
electricity distribution reset.
Fitch rates SP AusNet's senior unsecured debt one notch higher than the IDR,
reflecting the agency's view that recovery on the senior unsecured debt would be
higher than average in the event of a default, given the regulated utility
nature of the group's assets.
Positive: While considered less likely due to significant capex over the medium
term, future developments that may, individually or collectively, lead to
positive rating action include:
- forecast net debt to Regulatory Asset Base at below 65% and funds from
operations (FFO) interest coverage at above 2.75x, both on a sustained basis
(69% and 2.7x respectively in FY13).
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- forecast net debt to Regulatory Asset Base at above 75% and FFO interest
coverage deteriorates at below 1.75x, both on a sustained basis
The ratings actions are:
SP AusNet: Long-Term IDR downgraded to 'BBB+', Outlook Stable
SPI PowerNet Pty Ltd : Long-Term IDR downgraded to 'BBB+', Outlook Stable
SPI Electricity & Gas Australia Holdings Pty Ltd : Long-Term IDR downgraded to
'BBB+', Outlook Stable; senior unsecured rating downgraded to 'A-'
SPI Australia Holdings (Partnership) Limited Partnership: Long-Term Foreign
Currency IDR downgraded to 'BBB+', Outlook Stable; senior unsecured rating
downgraded to 'A-'
SPI Electricity Pty Ltd : Long-Term Foreign Currency IDR downgraded to 'BBB+,
Outlook Stable; senior unsecured rating downgraded to 'A-'
SPI Australia Finance Pty Ltd : senior unsecured rating downgraded to 'A-'
SP Ausnet's borrowings benefit from cross-guarantees by the principal
asset-owning companies within the group. Hence, the agency also applies the IDR
of SP Ausnet to the group companies listed above.