BEIJING, October 24, 2022 -- S&P Global (China) Ratings has assigned its “AAAspc” issuer credit rating to Shenergy (Group) Co., Ltd. ("Shenergy" or "company”), the outlook is stable.
Shenergy is a state-owned enterprise wholly-owned by Shanghai State-owned Assets Supervision and Administration Commission (Shanghai SASAC). It invests in, constructs and manages electrical power and gas infrastructure projects, and plays an important role in Shanghai’s energy security. Main revenue sources are from its gas and power business. In 2021, the company’s retail gas sales volume was 9.02 billion cubic meters and total power output of 48.48 billion kWh. By the end of June 2022, the company had controlled installed capacity of 15.6 GW, generating 23.12 billion kWh of electricity from January to June.
The company's business risk profile is “strong”. It has a monopoly over gas in Shanghai, where tariff mechanisms are clear and being constantly improved. The company has effective upstream and downstream integration. Its diversified gas sources help ensure sufficient gas supply and improve flexibility on costs. However, the company has limited control over gas costs, which can cause unstable profits. The company plays an important role in supplying power to Shanghai. Its power supply business utilizes highly efficient equipment, and the company is gradually moving to diversify its energy mix. Accelerated market-oriented reforms can ease cost pressures, while expansion into new energy should help stabilize profits. However, pressure from fluctuating costs may continue due to limited control over upstream coal prices.
The company’s financial risk is "modest.” Leverage is somewhat volatile but largely controllable, amid uncertainty over rising fuel prices. At the same time, low financing costs can help maintain interest coverage at a high level. We expect capex to increase as the company expands its new energy and natural gas infrastructure. This would increase its debt, but the company has sufficient credit lines and good access to financing channels, and is expected to maintain strong refinancing capacity.
S&P Global (China) Ratings has made a one-notch upward adjustment to reflect the company’s significant holdings of high-quality, highly-liquid financial assets. These enhance its financial flexibility and help to mitigate financial risks.
The rating outlook for Shenergy is stable. The stable outlook reflects our view that it shall continue playing an important role in Shanghai’s energy security, remaining critical to Shanghai Municipal Government. The company should maintain its monopoly over gas in Shanghai, acquiring gas from a diverse range of sources. Its power supply business should maintain a leading market share and good unit operating efficiency in Shanghai and installed new energy capacity is set to increase. The sharp rise in natural gas and coal prices, along with increased capex, may see leverage fluctuate. However, we expect it to maintain low financing costs and strong access to financing. Coverage of FFO to interest should stay high.
Upside scenario: Not applicable.
Downside scenario: In the following circumstances, we may consider downgrading the company's issuer credit rating: The company's importance to Shanghai Municipal Government deteriorates. This scenario could occur if i) the company’s role in local energy security is significantly diminished; ii) the company’s monopolistic role and advantages are significantly reduced; or iii) there is a change in the ownership structure, where Shanghai Municipal Government’s holding in the company is weakened, or the company is no longer directly controlled by Shanghai SASAC.
Related methodologies:
S&P Global (China) Ratings - Corporate Methodology, 29 August 2022.
S&P Global (China) Ratings Supplementary Rating Methodology - Regulated Utilities, 21 May 2019.
S&P Global (China) Ratings Supplementary Rating Methodology - Energy Industry, 21 May 2019.
S&P Global (China) Ratings - General Considerations on Rating Modifiers and Relative Ranking, May 21, 2019.
Related research:
Commentary: Understanding S&P Global (China) Rating Corporate Methodology, July 28, 2020.
Commentary: Understanding S&P Global (China) Ratings General Considerations On Rating Modifiers and Relative Ranking Methodology, June 29, 2020.
Commentary: Understanding S&P Global (China) Ratings Approach To Support, May 9, 2019.
Media Contacts:
Sharon.Tang，Beijing； (86)10-6569-2988；sharon.tang@spgchinaratings.cn
Analyst Contacts:
Di Jiao, Beijing; Di.jiao@spgchinaratings.cn
Zhen Huang,Beijing; Zhen.huang@spgchinaratings.cn