OREANDA-NEWS. Fitch Ratings has affirmed China General Nuclear Power Corporation's (CGNPC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'A+' and its senior unsecured debt rating at 'A'. The Outlook is Stable.

Simultaneously, Fitch has affirmed the ratings on CGN Meiya Power Holdings Co., Ltd.'s (Meiya, formerly known as Meiya Power Company Limited) USD350m senior unsecured notes, which are backed by a keepwell deed and equity interest purchase undertaking (EIPU) from CGNPC, and China Uranium Development Company Limited's (China Uranium) USD600m senior unsecured notes guaranteed by CGNPC, at 'A'.

The IDRs on CGNPC are equalised with the China sovereign (A+/Stable) in line with Fitch's Parent and Subsidiary Linkage criteria. This reflects CGNPC's strategic importance to the state and the substantial tangible support it has consistently received from the state. CGNPC's senior unsecured debt is rated a notch lower than its IDR due to the existence of significant secured debt (7.1x of EBITDA in 2013).

The notes issued by Meiya and China Uranium are rated at the same level as CGNPC's senior unsecured debt rating, based on Fitch's view that the keepwell deed and EIPU for Meiya's bond and the guarantee for China Uranium's bond demonstrate CGNPC's strong commitment to ensure that these two subsidiaries have sufficient liquidity to honour their debt obligations.

KEY RATING DRIVERS

Strategic Importance to China: CGNPC is China's top nuclear power operator by both operational and pipeline nuclear power capacity, and one of only three companies with legal licenses to operate nuclear power plants in China. CGNPC is of strategic importance to the state because nuclear power is crucial to China's efforts to mitigate the air pollution while optimising the mix of power generation sources. Nuclear power is superior to other alternative renewable power sources in terms of reliability, predictability, affordability and proximity to demand centres. The central government plans to quadruple operational nuclear power capacity to 58GW by 2020, with CGNPC to continue to account for a significant portion of the capacity. The company has also demonstrated a consistent operational safety record.

CGNPC's improving technical abilities also allow it to take on overseas nuclear power projects that contribute to the central government's "Go Global" policy, which calls for outward investment by Chinese enterprises. In addition, around one-fourth of Hong Kong SAR's electricity consumption is met by CGNPC's Daya Bay Power Station, and the reliance is likely to further increase from 2015.

Substantial Tangible Support: The nuclear power sector in China generally benefits from favourable policies, such as priority in power grid despatch, tax rebates and high administrative entry barriers. As the industry leader, CGNPC has received direct state support in different forms, including equity injections and subsidies. The state-owned banks such as China Development Bank also provide CGNPC with sufficient funding for expansion with central government's support.

No Impact from Subsidiary's IPO: In December 2014, CGNPC reduced its stake in its nuclear power operating subsidiary CGN Power Co Ltd. to 64.2% from 85.1% after the subsidiary completed its initial public offering. However, Fitch does not expect CGNPC's strategic importance to or support from the state to be hurt as the State-owned Assets Supervision and Administration Commission of the State Council still effectively owns 100% of CGNPC through its related parties and CGNPC still exerts absolute operational control over the operating subsidiary.

Leverage Stretched by Capex: CGNPC's standalone financial profile is stretched due to its extensive programme to add nuclear power capacity. Currently, CGNPC operates 11 generating nuclear power units (including two associate units) with total capacity of 11.6GW and has 13 units (including four associate units) of 15.5GW under construction. CGNPC's leverage as measured by the ratio of funds flow from operations (FFO) to net adjusted debt is likely to remain above 10x as the construction phase of these plants will require an elevated level of capital expenditure. Nonetheless, the company's liquidity is sufficiently supported by large committed credit facilities from domestic banks as well as the aforementioned state support. With a number of new units due to start operation between 2014 and 2016, the company's financial metrics should start to gradually improve.

RATING SENSITIVITIES

CGNPC's IDRs are equalised with the China sovereign's. Positive rating action may arise from a positive rating action on the China sovereign, provided the linkages between CGNPC and the state remain intact.

Negative rating action may arise from a negative rating action on the China sovereign, or evidence of weakening linkage between CGNPC and the China sovereign, such as significant reduction in state control or material adverse policy changes on nuclear power sector.

The note issued by Meiya and China Uranium are equalised to the senior unsecured rating of CGNPC. As such, any action on CGNPC's senior unsecured rating will result in a similar change to the rating of the notes. Triggers for rating actions on CGNPC's senior unsecured rating include rating actions on CGNPC's IDR and the significance of its higher ranking debts.

For the sovereign rating of China, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 4 April 2014:

The main factors that individually, or collectively, could trigger positive rating action on China include:

- The country's ability to navigate structural economic adjustment without economic, financial or social disruption is centrally important for the sovereign credit profile and ratings. Progress on reform and rebalancing without disruptive shocks would reduce China's structural vulnerabilities.
- Greater confidence over the scale of the debt problem in China's broader economy, and of the approach to resolving it.

The main factors that individually, or collectively, could trigger negative rating action on China include:

- Continuation of "more of the same" credit-fuelled and investment-led growth, reflecting an absence of material progress on reform and rebalancing, would exacerbate China's structural vulnerabilities. The ultimate resolution would likely be riskier and potentially costlier for the sovereign.
- A further significant and sustained rise in public indebtedness, potentially reflecting a crystallisation of contingent liabilities, without a clear prospect of a subsequent sustained decline.