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Stable outlook for APAC power utilities thanks to steady demand, low costs

Staff writer |
Moody's Investors Service says that its stable outlook for the power sector in Asia Pacific (ex-Japan) is underpinned by steady demand, low input costs for most countries and transparent tariff mechanisms for some countries.

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However, the outlook for India's power sector remains negative, reflecting structural challenges.

"Steady demand for electricity in most countries in the region, and low input costs under stable market structures will allow most power companies to recover capex and maintain adequate financial buffers," says Mic Kang, a Moody's Vice President and Senior Analyst.

"In addition, most power companies exhibit strong-to-adequate funding capacity that will help them sustain their credit quality, while state-owned power utilities will continue to benefit from strong government support," adds Kang.

Kang was speaking on the release of a special report entitled, "Power Utilities - Asia Pacific ex-Japan: 2016 Outlook - Steady Demand, Low Input Costs Drive Stable Outlook, Despite High Capex".

Moody's outlook reflects its expectations for fundamental business conditions in the sector over the next 12-18 months.

Moody's report highlights that most power companies in Australia's (India power stable) regulated network sector, as well as those in Hong Kong (Aa1 stable), and Singapore (India power stable) will continue to benefit from transparent and consistently applied tariff-setting mechanisms.

But in China (Aa3 stable), thermal power generators will be affected by slower power demand and the regulators' promotion of renewable and clean energy over thermal power. However, lower inputs costs and their financial headroom will mitigate the slowing demand.

Moody's expects China's power consumption growth will remain nearly flat over the next 12-18 months, due to slowing industrial activity and the country's economic rebalancing, as well as China's continuous transformation from manufacturing based economy to one based more on services.

That said, low coal prices, diversification by most thermal power companies into renewable generation and their moderating capex from 2016 will help the companies to broadly sustain their operational cash flows and limit downside risk.

The negative outlook for the Indian power sector reflects the persistent challenges from high, albeit moderating, fuel supply risk, and the limited capacity to pay on the part of financially weak distribution utilities.

Indian power generators' capacity utilization will likely be limited by the financial weakness of offtakers, in turn constraining off-take electricity demand, despite growing electricity demand and increasing domestic coal production.

Around 70% of rated power utilities in Asia Pacific (ex-Japan) have stable outlooks, reflecting the stable fundamentals and their adequate financial profiles relative to their ratings.

Most of the remaining rated power companies, which are state-owned utilities and wholly-owned subsidiaries of a state-owned utility, carry positive outlooks, mainly reflecting the positive outlooks on their respective sovereigns' ratings -- Korea (Aa3 positive), Malaysia (A3 positive) and India (Baa3 positive).


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