Fitch afrms Datang International Power at 'BB'/stable

Fitch Ratings has affirmed Datang International Power Generation Co. Limited's (DIPG) Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'BB' with a Stable Outlook. The agency has simultaneously affirmed its senior unsecured ratings at 'BB' and Short-Term Foreign and Local Currency IDRs at 'B'.

"The affirmation of the ratings reflects the stable position of DIPG and the parent China Datang Corporation in the face of continued disparity between high coal prices and artificially low electricity tariffs," notes Steve Cox, Director in Fitch's Asia-Pacific Energy and Utilities team.

Both DIPG and China Datang Corporation remain a notch above their standalone credit profiles, reflecting potential state support. Fitch applies its parent and subsidiary rating linkage methodology to assess the links between DIPG and China Datang Corporation, and between China Datang Corporation and the sovereign. The standalone credit profile of DIPG and the consolidated profile of its parent are assessed as equivalent to 'BB-' before any assessment of state support provides the single-notch uplift.

The Stable Outlook reflects Fitch's expectation that the Chinese government will take adequate steps to support Chinese independent power producers such as DIPG - as evidenced in the retrospective tariff rises for 2010 production in some plants, and April 2010 tariff rises in certain provinces. The Outlook, however, also incorporates Fitch's view that the disparity between coal prices and tariffs will continue and the burden will be primarily born by power producers.

Fitch expects DIPG's total adjusted debt/operating EBITDAR to remain above 8.5x over the medium term. However, DIPG and the parent remain exposed to financial deterioration due to a weak thermal power industry and lack of a transparent pass-through mechanism for rising coal prices. However, the risk is partly mitigated by the group's own coal production business.

Fitch may take negative rating action if the financial profile of either DIPG or China Datang Corporation deteriorates.



Reuters