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UTILITIES | Staff Reporter, Hong Kong
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CLP Power's MTN drawdown gets A1 Rating from Moody's

Moody's however cautions of liquidity pressures.

Moody's Investors Services has assigned an A1 rating to the fixed-rate notes to be issued by CLP Power Hong Kong Financing Limited, the wholly owned financing subsidiary of CLP Power Hong Kong Ltd (CLP Power).

The rating outlook is stable.

These notes are irrevocably and unconditionally guaranteed by CLP Power and are pursuant to its USD3.5 billion medium-term note program.

The company plans to use the proceeds for general corporate purposes.

RATINGS RATIONALE

"The A1 rating reflects CLP Power's strong and highly predictable cash flow, which is generated from its Scheme of Control operations under a highly stable regulatory environment in Hong Kong," says Ivan Chung, a Moody's Vice President -- Senior Credit Officer.

CLP Power is regulated by the government under the Scheme of Control Arrangement. The regulatory framework will remain unchanged for the current Scheme of Control period and will continue to offer a transparent tariff system, allowing 100% cost pass-through.

"In addition, the company's projected financial profile is strong for the rating. It also has a good track record in accessing the domestic and international bank and capital markets, and has a well-managed debt
maturity profile," adds Chung, also Moody's Lead Analyst for the company.

On the other hand, its liquidity profile may be pressured to a certain extent by its long-term capex plan and high dividend payments to its parent, CLP Holdings Ltd (CLPH, A2 stable), which has a weaker credit
profile.

The A1 rating is further constrained by the weaker credit profile of CLPH, which continues to expand into the more risky non-regulated energy business in the region. Moody's considers the ratings of CLP Power and

CLPH to be closely linked, and any negative rating pressure at one of the companies will result in a corresponding effect on the other. The rating outlook is stable, reflecting Moody's expectation that the Scheme of Control will not undergo any material change before its expiry in 2018.

The outlook is also in line with its parent's stable rating outlook, which in turn reflects Moody's expectation that CLPH will: 1) successfully integrate the New South Wales (NWS) business; 2) gradually improve its financial profile; and 3) avoid major debt-funded acquisitions in the next 12-18 months.

The possibility of an upgrade is limited in the near term because of the low potential for growth in Hong Kong's mature power market and the challenges related to the consolidation of the NSW operations, which the
company acquired in last year.

On the other hand, downward rating pressure would emerge if CLPH adopts a more aggressive strategy in pursuing overseas expansion, which results in a ratings downgrade owing to an increase in the group's business and financial risk profiles.

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