Power companies to reap big benefits from China's economic rebalancing: Moody's

Coal prices are also seen to fall.

Moody's Investors Service says a rebalancing of China's economy will benefit the country's power companies, with a moderation in new capacity additions and falling coal prices.

According to a release from Moody’s Investors Service, the analysis is based on Moody's sector comment, titled "China's Power Generation Sector -- Set to benefit from China's rebalancing initiatives.”

"As China's electricity demand and supply is in balance and the economy is rebalancing, the need for capacity additions is moderating. Capital expenditure in the industry is therefore shifting from capacity additions to fuel mix optimization," says Ivan Chung, a Moody's Senior Vice President.

"At the same time, the price of coal is expected to remain soft over the next 12 -- 18 months, which will alleviate pressure on the financial profiles of the five largest power generating groups in China by installed capacities," adds Chung.

Here’s more from Moody’s Investors Service:

The report looks at key issues for China as the world's largest producer and consumer of electricity, such as demand and supply for electricity; the market structure and key players; the regulatory framework; and the sector's strategic importance and its key credit drivers.

Power generation activities serve important economic and social functions. The sector's strategic importance -- according to Moody's -- will remain high, and is unlikely to change, given China's large population, and ongoing industrialization and urbanization.

And China's large power generating companies -- as state-owned enterprises -- are better placed than profit maximizing private enterprises to help the government roll out its policy objectives.

As such, we expect the credit profiles of most the large power generating groups to benefit from high levels of extraordinary support from their owner governments under financial distress scenario, owing to the strategic importance of the groups to the economy and the society.

Rising onshore interest rates will also pressure the credit metrics of power generating companies, which mainly rely on onshore credit markets and have large funding and refinancing needs.

However, Moody's expects their liquidity profiles to remain sound, due to their solid operations as well as their good access to the onshore credit markets.

Furthermore, the large power generating companies are likely to be more active in the offshore bond markets, tapping them to fund their overseas expansions and possibly lower their funding costs.