Fitch affirms China Power International at 'BB'/stable

Fitch Ratings has affirmed China Power International Development Limited's (CPI) Long-term

foreign and local currency Issuer Default Ratings (IDRs) at 'BB' with a Stable Outlook. The

agency simultaneously affirmed its Short-term foreign and local currency IDRs at 'B'.

"The ratings reflect CPI's strategy of investment in the hydro-power segment to reduce its

exposure to the fundamental problems facing the thermal power segment," says Steve Cox,

Director in Fitch's Asia-Pacific energy and utilities team. CPI reported an EBITDA margin

of 27.5% for H111, and for H110 its EBITDA margin was the highest among Fitch-rated Chinese

thermal independent power producers (IPPs). The company has also mitigated some of the

disparity between high coal prices and government controlled on-grid tariffs by high levels

of contract fulfilment - around 90% of coal supply - and tying in coal supply with two

thermal stations by offering minority equity stakes to the coal producer.

Fitch applies its parent and subsidiary rating linkage methodology to assess the linkages

between CPI and its parent China Power Investment Group (CPI Group). CPI Group benefits

from an investment portfolio vertically integrating coal, power and aluminium business

units. The parent's consolidated credit profile is weaker than CPI's stand-alone 'BB'

rating by one notch. Due to the lack of ring fencing of CPI from its parent, CPI 's rating,

before any consideration of state support, is constrained by the credit profile of its

parent. However in view of CPI Group and CPI's strategic importance to China, Fitch has

applied a one-notch uplift in arriving at CPI's final rating of 'BB'.

The agency notes that CPI's capex plans, although still aggressive and partly debt

financed, are weighted toward hydro power and will further increase the company's

protection against low margins or losses in the thermal power segment. These projects

include the Baishi and Tuokou hydro projects which will add installed capacity of 1.85GW

upon completion. However, CPI is exposed to hydrological risk from concentration of its

assets on the Yuanjiang river.

The Stable Outlook reflects Fitch's expectation that the Chinese government will take

adequate steps to support the Chinese IPPs, as evidenced in the retrospective tariff rises

against 2010 production in some plants, and April 2010 tariff rises in some provinces. But

it 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.





Reuters