OREANDA-NEWS. Fitch Ratings has affirmed Singapore Power Limited's (SP) and SP PowerAssets Limited's (SPPA) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) at 'AA-', and Short-Term Foreign-Currency IDRs at 'F1+'. The Outlook is Stable. Fitch has also affirmed SP's senior unsecured rating at 'AA-'.

KEY RATING DRIVERS

Strong Business Profile: SP's standalone rating of 'A' is supported by its low business risk, which is due to its monopoly position in transmission and distribution (T&D) of electricity and gas in Singapore; almost wholly regulated earnings, which provide stable and predictable cash flows; a strong efficiency track record; and a stable and relatively mature regulatory regime.

Uplift for Parent Support: The ratings of SP and SPPA benefit from a two-notch uplift from their standalone credit profiles to reflect strong support from their parent, Temasek Holdings Pte Ltd (Temasek) - and ultimately the Singapore sovereign (AAA/Stable/F1+). This is based on the strategic importance of SP's electricity and gas network assets in Singapore, and tangible financial support to SP from its parent in the past.

Continued Large Capex: We expect SP's capex to remain high over our forecast period from the financial year ending 31 March 2016 (FY16) to FY19. This is because it needs to invest heavily in both electricity and gas transmission and distribution in Singapore, which will contribute to negative FCF over the period.

Stable Financial Profile: Fitch expects credit and leverage ratios to remain comfortably within the range for an 'A' rating for regulated utilities in FY16-FY19. In FY15, FFO net leverage was 1.7x (FY14: 0.3x), despite high ongoing capex and a SGD1bn capital reduction to the shareholder. SP's leverage declined significantly in FY14 due to the de-consolidation of the Australian network businesses' debt, as well as a reduction in SP's debt using part of the SGD3.5bn (USD2.7bn) proceeds from the divestments.

However, much larger-than-expected capex and/or dividends and substantial debt-funded acquisitions could hurt SP's standalone rating, as could a major acquisition overseas with higher regulatory or operational risk.

Linkages between SP and, SPPA: There are strong operational and strategic links between SP and SPPA, and no specific ring-fencing mechanism. As a result, the standalone credit profiles are equalised. This means that any downgrade of SP's standalone credit profile due to a weakening of its operational and financial profile, would lead to a downgrade in SPPA's standalone rating.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Modest revenue growth in FY16 (FY15: 1%)
- EBITDA margins stable at around 33% (FY15: 34%)
- Capex/revenue of around 30% in FY16 (FY15: 31%)

RATING SENSITIVITIES

Negative: Future developments that may individually or collectively lead to negative rating action include:
- FFO net leverage above 4x and FFO fixed-charge coverage less than 4.5x (FY15: 10.6x) on a sustained basis;
- Adverse changes in the regulatory system leading, for example, to reduced earnings;
- A weakening of the operational and strategic links with SP's parent Temasek and/or the Singapore state

Positive: Further developments that may individually or collectively lead to positive rating action include
- Strengthening of operational and strategic links with SP's parent Temasek and/or the Singapore state
- An upgrade of the standalone rating of SP and SPPA above 'A' is unlikely, unless there is a strong publicly announced commitment to maintain a more robust than financial profile and there is greater transparency in the regulatory framework.

FULL LIST OF RATING ACTIONS

Singapore Power Limited:
Long-Term Foreign and Local Currency IDRs affirmed at 'AA-'; Outlook Stable
Senior unsecured rating affirmed at 'AA-';
Short Term Foreign-Currency IDR affirmed at 'F1+'

SP PowerAssets Limited:
Long-Term Foreign and Local Currency IDRs affirmed at 'AA-'; Outlook Stable
Short Term Foreign-Currency IDR affirmed at 'F1+'