Thumbnail: 

Moody's Investors Service says that it has maintained its stable outlook for the Asian power utilities sector (ex-Japan) for the next 12 to 18 months.

"The outlook for the Asian power sector is underpinned by our expectations that the favourable regulatory environment and governmental support will remain intact as stable power supply is becoming increasingly important to sustain economic growth in the region," says Mic Kang, Moody's Vice President and Senior Analyst.

"However, excessive capex and overseas investments or a further delay in cost recovery would adversely affect the sector's outlook by adding pressure on the credit metrics of the power utilities," he says.

Kang was speaking at the release of a report that discusses key issues such as rising capex and investments, fuel price pressure, fuel supply risk, as well as the rating implications for the Asian power utilities sector (ex-Japan).

According to the report, high capex and investments will continue to weigh on key credit metrics. Hwever, most Asian utilities have some headroom before a negative rating action becomes necessary, given the likelihood of supportive measures by the government and the increasing operating cash flows from new power plants and investments.

The power utilities have some flexibility to adjust their capex and investment plans, depending on the prevailing market conditions and their financial status.

In addition, the pressure on government-owned integrated utilities from high fuel prices is likely to be partially offset by measures, such as ad-hoc tariff increases and subsidies. However, these measures will be subject to the prevailing economic conditions and fiscal budgets of the respective governments.

Moody's expects the fuel shortages in Malaysia to be gradually resolved by the government's initiative to improve the efficiency of gas supply.

In India, NTPC Limited (Baa3 stable) has secured reliable fuel supply arrangements, while Tata Power

Company Limited (Ba3 stable) has sufficient supplies for its current capacity. However, fuel shortage is a structural problem in the country.

"Overall, the power sector is less affected by the slowdown in the global economy because of domestically oriented operations, relatively inelastic power demand, and the strong access to local capital markets. We expect the credit profiles of most Asian power utilities (ex-Japan) to remain consistent with the currently assigned ratings," Kang says.

MORE ARTICLES ON UTILITIES

Quote Image: