Here's the impact of Hong Kong's scheme of control agreement review on CLP Holdings

Will it be badly hurt?

Moody's Investors Service says that modifications in the Hong Kong government's interim review of the Scheme of Control Agreement (SoC) released on 21 November will have no immediate rating impact on CLP Holdings Limited (CLPH, A2 Negative) and CLP Power Hong Kong Limited (CLPP, A1 Negative).

Moody's expects a minimal financial impact on CLPH, given the moderate extent of the modifications.

Here's more:

Nevertheless, the reduction on the cap for the tariff stabilization fund balance and the change in depreciation period of transmission and distribution assets imply that the government is exploring ways to minimize the size of future tariff hikes. 

CLPH will likely face increasing pressure against raising tariffs in the future due to the political and social climate, as was the case with the last tariff hike for 2013.

On 21 November, the government completed its mid-term review of the SoC with the two relevant power companies, including CLPP.

The main modifications include (1) setting up an energy efficiency fund totaling approximately HKD100 million, of which CLPP will contribute some HKD70 million on a matching basis over four years to provide subsidies to non-commercial buildings;

(2) lowering the cap on the tariff stabilization fund balance to 5% from 8% of the annual total revenue from sales of electricity to Hong Kong consumers, and (3) lengthening the depreciation period of transmission and distribution assets.