Hong Kong, November 26, 2014 — Moody’s Investors Service says that the outlook for power utilities in Asia (ex-Japan) will remain stable, except for India, for the next 12-18 months, primarily driven by steady market structures and adequate financial buffers for most power utility companies.India’s power sector outlook remains negative.
“State-owned power utilities’ continued dominance of the market will allow them to benefit from solid-to-steady demand growth for electricity, and reliable contracts or tariff systems will ensure stable business conditions for independent power producers,” says Mic Kang, a Moody’s Vice President and Senior Analyst.
In addition, Moody’s expects that most rated utilities will maintain adequate financial buffers, as fuel costs decline and newly commissioned power facilities generate additional cash flows. This expectation is despite Moody’s view that consistent cost pass-through tariff systems are unlikely to be implemented in most power sectors over the next 12-18 months.
Kang was speaking on the release of a special report entitled, “2015 Outlook – Asian Power Utilities (ex-Japan): Stable Outlook Reflects Steady Market Structures and Utilities’ Financial Buffers”, which was co-authored by Kang, Vice President/Senior Analyst Ray Tay, and Analyst Ivy Poon.
Moody’s report offers a broad regional overview, and also examines individual power sectors in China (Aa3 stable), Hong Kong (Aa1 stable), India (Baa3 stable), Indonesia (Baa3 stable), Korea (Aa3 stable), Malaysia (A3 positive), the Philippines (Baa3 positive), Singapore (Aaa stable) and Thailand (Baa1 stable).Moody’s expects that fundamental business conditions will remain stable over the next 12 to 18 months, except for the Indian power sector.
“The continued negative outlook for the Indian power sector reflects our view that the Indian government’s new measures are unlikely to offset the persistent inefficiencies across the value chain from fuel supply to distribution, during the outlook period,” says Tay.
The Indian government’s 2015 budget measures for the power sector, while positive, have a long-term horizon and face implementation risk. Such measures aim to address problems related to the cost pass-through of imported fuels, the domestic gas shortage for gas-fired power plants, as well as the long-term financial health of State Electricity Boards.
Meanwhile, the financial metrics of individual power utilities will generally remain similar or better, compared to 2013 levels, and consistent with the current ratings over the outlook period.”In particular, China will show a moderating yet steady demand for electricity as its economy slows. However, our rated Chinese utilities will likely maintain stable financial profiles, given their adequate financial cushion and current low coal prices,” says Poon.
On a relative and issuer-specific basis, CLP Holdings Limited (A2 negative), SK E&S Co., Ltd (Baa1 negative) and Ratchaburi Electricity Generating Holding PCL (Baa1 stable) demonstrate lower financial headroom against the backdrop of a challenging operating environment for overseas operations, higher than budgeted capital expenditure and/or execution risk
The material has been provided by InstaForex Company – www.instaforex.com