Summary analysis -- SP PowerAssets Ltd. --------------------------- 18-Dec-2012
===============================================================================
CREDIT RATING: AA-/Stable/NR Country: Singapore
Primary SIC: Electric Services
Mult. CUSIP6: 78462Q
===============================================================================
Credit Rating History:
Local currency Foreign currency
31-Mar-2008 AA-/NR AA-/NR
31-May-2005 AA/NR AA/NR
===============================================================================
Rationale
The rating on SP PowerAssets Ltd. (SPPA) reflects the company's monopoly as
the sole owner and maintainer of Singapore's electricity transmission and
distribution (T&D) assets, and as the sole electricity transmission licensee.
The rating also reflects SPPA's high revenue and cash flow certainty, which is
supported by a regulated tariff structure till 2013 and a cap on the company's
loss of revenues due to lower volumes. We assess SPPA's business risk profile
to be "excellent" and its financial risk profile to be "intermediate." SPPA is
a wholly owned subsidiary of Singapore Power Ltd. (SingPower: AA-/Stable/--;
axAAA/--), which the Singapore government's investment holding company,
Temasek Holdings (Private) Limited (AAA/Stable/A-1+; axAAA/axA-1+), owns.
We assess SPPA's stand-alone credit profile to be 'a'. The rating on SPPA
incorporates a two-notch uplift to reflect our opinion that there is a "very
high" likelihood that the government of Singapore (through Temasek) would
provide timely and sufficient extraordinary support to the company in the
event of financial distress. In accordance with our criteria for
government-related entities (GREs), our view of the extraordinary government
support is based on our assessment of the following SPPA characteristics:
-- Its "very important" role as the owner and maintainer of Singapore's
electricity T&D assets, and the importance of the economic service the company
delivers; and
-- Its "very strong" link with the government through SingPower's parent,
Temasek, which the government of Singapore (AAA/Stable/A-1+; axAAA/axA-1+)
owns.
The rating on SingPower influences the rating on SPPA. The rating on SingPower
reflects the consolidated credit profile of the company and its subsidiaries,
including SP AusNet Group (local currency A-/Stable/--), SPPA, and SPI
(Australia) Assets Pty Ltd. (A-/Stable/--). The majority of SingPower's
businesses focus on stable and monopolistic T&D businesses. Nevertheless, we
believe SingPower's consolidated stand-alone credit profile is weaker than
that of SPPA.
Lenders to other companies in the SingPower group do not have recourse to
SPPA's assets. Nevertheless, the rating on SPPA cannot be higher than that on
SingPower because SPPA is not ring-fenced from other group companies. As
SPPA's dominant owner, SingPower can move funds across group companies to
support weaker businesses, if necessary. SPPA's transactions with the other
group companies need the approval of independent board directors. But the
company is not restricted from paying special dividends to SingPower. SPPA's
operations and business also remain closely linked to SP Services Ltd. (not
rated) and SP PowerGrid Ltd. (not rated), both of which SingPower wholly owns.
We expect SPPA's cash flow adequacy measures to weaken in the next two years
as the company increases both replacement and growth investments in Singapore
to address aging infrastructure and meet future increases in demand. These
investments will be partially funded with debt. We estimate SPPA's ratio of
funds from operations (FFO) to debt to average about 11%-12% for the next five
years, compared with an average of about 13% over 2010-2012. SPPA's
high-quality cash flow, liability management efforts, and solid access to
financial markets should mitigate the impact of weaker cash flow measures, in
our opinion.
Liquidity
SPPA's liquidity is "adequate," as defined in our criteria. We expect the
company's liquidity sources (including cash, FFO, and credit facilities) to
exceed its uses by at least 1.2x over the next 12 months. Our liquidity
assessment is based on the following factors and assumptions:
-- Cash and cash equivalents and available lines under committed bank
facilities fully cover debt maturities over the next 12 months.
-- EBITDA is highly predictable, which is supported by a favorable
regulatory framework in Singapore.
-- We believe net liquidity sources would remain above cash requirements
even if EBITDA declines by 20%.
-- The company has supportive banking relationships and has good access
to debt capital markets in Singapore.
Outlook
The outlook on SPPA reflects the outlook on SingPower.
We may lower the rating on SPPA if we lower the likelihood of extraordinary
government support for SingPower by one category to "moderately high." We
could also downgrade the company if its stand-alone credit profile weakens by
one notch to 'bbb+' due to either of the following:
-- SingPower departs significantly from its strategy of staying in its
core T&D business in a stable regulatory environment; or
-- The contribution of SingPower's international businesses to the
group's cash flows and assets increases materially, such that it becomes the
key driver of the rating; or
-- SingPower's cash flow adequacy and liquidity deteriorate, or a tunnel
project that the company has undertaken in Singapore faces material delays and
cost overruns, such that its FFO-to-debt ratio heads toward 10% or below.
Conversely, while the probability of an upgrade is low, we could raise the
rating if we raise the likelihood of extraordinary support by one category to
"very high" or SingPower's stand-alone credit profile improves by three
notches.
Related Criteria And Research
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
2012
-- Rating Government-Related Entities: Methodology And Assumptions, Dec.
9, 2010
-- Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010
-- Business And Financial Risks In The Investor-Owned Utilities Industry,
Nov. 26, 2008
TEXT-S&P summary: SP PowerAssets Ltd.
This article
TEXT-S&P summary: SP PowerAssets Ltd.
can be opened in url
http://newsportalls.blogspot.com/2012/12/text-s-summary-sp-powerassets-ltd.html
TEXT-S&P summary: SP PowerAssets Ltd.
