Moody’s shifts rating outlooks of Huaneng and Huadian to stable

Investing.com -- Moody’s Ratings has adjusted the rating outlooks for China Huaneng Group Co., Ltd. (CHGC), Huaneng Power International (NYSE:HNP), Inc. (HPI), and China Huadian Corporation LTD. (CHD) from negative to stable today. The ratings agency also confirmed the A2 issuer ratings and ba1 baseline credit assessments (BCAs) for these companies and their guaranteed subsidiaries.

The stabilized outlooks also apply to several related entities. These include the A2 senior unsecured ratings of bonds guaranteed by CHGC and A3 subordinate rating of perpetual securities guaranteed by CHGC, both held by China Huaneng Group (Hong Kong) Treasury Management Holding Limited. Sinosing Services Pte. Ltd.’s A2 senior unsecured rating of bonds guaranteed by HPI was also affirmed. In addition, the medium-term note (MTN) program under China Huadian Overseas Development 2018 Ltd., guaranteed by CHD, maintained its (P)A2 senior unsecured rating, (P)A3 subordinate rating, and A2 senior unsecured rating of notes issued.

Moody’s Vice President and Senior Credit Officer, Ada Li, stated that the rating affirmation and outlook adjustment reflects the Chinese government’s consistent support for central-government-owned power utilities. She added that these ratings are resilient to a potential downgrade of China’s sovereign rating over the medium term.

Previously, the outlooks for these companies were switched to negative in December 2023 in response to the Government of China’s (A1 negative) sovereign rating outlook change. The change was based on the belief that financial support to stressed entities would become more selective, leading to prolonged risks for state-owned enterprises (SOEs). However, Moody’s believes that the Chinese government’s ongoing reform efforts will not reduce the very high likelihood of extraordinary support to CHGC, HPI, and CHD.

All three companies, controlled and supervised by the central government, are among the largest power generation companies in China. They have benefited from multiple central government statements reaffirming their critical role in ensuring national energy security, facilitating high-quality development, and executing national decarbonization policy mandates.

Despite the negative outlook on China’s A1 sovereign rating, driven by risks posed by the global trade environment, the companies’ BCAs remain appropriate at current levels.

The ratings of CHGC, HPI, and CHD incorporate their BCAs of ba1 and a five-notch uplift reflecting a very high likelihood of extraordinary support from the Government of China. The companies’ BCAs reflect their leading positions as large power generation companies in China, providing them with significant operating flexibility. However, their BCAs are constrained by high financial leverage, an evolving regulatory regime, and a challenging operating environment.

Moody’s expects CHGC, HPI, and CHD to maintain their BCAs within the projected range. The central government’s willingness to provide extraordinary support when needed is expected to remain stable over the next 12-18 months.

The ratings could be upgraded if the issuers’ BCAs improve or if the Chinese government’s ability and willingness to provide support strengthens over a sustained period. Conversely, the ratings could be downgraded if the government’s willingness to support weakens or if the companies’ BCAs weaken significantly.

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