Fitch Ratings-Hong Kong/Singapore-23 July 2013: Fitch Ratings has assigned Hong Kong-based Meiya Power Company Limited's (Meiya) proposed USD senior unsecured notes an expected rating of 'A(EXP)'.

China General Nuclear Power Corporation (CGNPC; A+/Stable), Meiya's 100% owner, has granted a keepwell deed and a deed of equity interest purchase undertaking in favour of noteholders as credit enhancement to the proposed notes issue.

The expected rating on the proposed notes is at the same level as the senior unsecured 'A' rating of CGNPC, which is a notch below CGNPC's Issuer Default Ratings (IDR) of 'A+' given substantial secured and priority ranking debt of the company. Fitch has aligned the proposed notes' expected rating with that of CGNPC's senior unsecured rating as the agency considers any claim of noteholders under the keepwell deed and deed of equity interest purchase to be subordinated to the secured creditors of CGNPC. Meiya intends to use part of the proceeds to refinance some of its existing secured debt. However, Meiya's secured debt is still substantial even after the proposed refinancing.

The final rating on the notes is contingent upon the receipt of final documents conforming to information already received.

KEY RATING DRIVERS

Support given by CGNPC: As CGNPC is unable to provide a guarantee to offshore subsidiaries without approval from the Chinese authorities, it has provided a keepwell deed together with a deed of equity interest purchase undertaking to ensure the issuing entity, Meiya, has sufficient liquidity to meet its liquidity requirements, which include the obligations under the proposed USD notes. The liquidated damage clause in the deed enables the bondholder, via the trustee, to pursue a claim on CGNPC if it fails to honour its commitments under the keepwell. In Fitch's view this demonstrates strong interest from CGNPC to honour the debt obligations of Meiya.

The equity interest purchase undertaking provides additional substance to the credit enhancement structure. Should there be a default under the proposed notes, the trustee can require CGNPC to purchase equity interests in onshore operating subsidiaries currently held by subsidiaries of Meiya, the proceeds from which are to be used to settle obligations to the holders of the proposed notes. Under the agreement, the purchase price should be sufficient for Meiya to meet its outstanding payment obligations under the proposed notes.

Linkages with CGNPC: Fitch views that the linkages between Meiya and CGNPC as moderate to strong, based on evidence of tangible support provided in the past, their strong operational ties, and the strategic importance of Meiya to CGNPC. In addition to the keepwell deed and the deed of equity interest purchase undertaking, CGNPC has provided Meiya with a shareholder's loan of USD0.2bn and a guarantee to one of its bank facilities. CGNPC and Meiya have realigned their management structure and operations to position Meiya as the group's non-nuclear clean energy platform.

Mid-sized IPP: Meiya is an independent power producer (IPP) principally operating in China, with interests in several generation assets in South Korea. Operating capacity was about 4,800MW at end-2012. Its business profile is underpinned by a moderately diversified generation asset portfolio, in both geography and fuel type. The priority dispatch policy for clean energy in China and Meiya's long-term off-take agreements in Korea provide predictability to operating cash flows.

Weak financial profile: The standalone credit profile of Meiya is materially weaker than that of CGNPC's state support-driven IDR of 'A+'. This is due to its significant expansion programme over the last two years and ongoing capital expenditure. Funds from operations (FFO)-adjusted net leverage was 6.5x at end-2012 (end-2011: 4.6x). FCF would remain negative in 2013 and 2014 and exert further pressure on its credit metrics even after considering the improved margins of Chinese coal-fired power plants.

RATING SENSITIVITIES

The rating of the proposed instrument is tied to the senior unsecured rating of CGNPC. As such, any rating action on CGNPC's senior unsecured will lead to a similar change on the rating of the proposed notes.