S&P puts Shanghai Electric on negative watch

S&P said it placed the BBB long-term corporate credit rating and cnA long-term Greater China regional scale rating on Shanghai Electric Power Co. Ltd. on CreditWatch with negative implications.

The agency also said it placed on negative watch the BBB long-term issue rating and cnA Greater China regional scale rating on the company's guaranteed outstanding senior unsecured notes.

The negative watch is due to an expectation that Shanghai Electric will face heightened business risk and cash flow volatility following its proposed acquisition of a controlling stake in K-Electric Ltd., S&P explained.

The transaction will be completed in 2017 subject to conditions and approvals of shareholders and regulators, the agency said.

The heightened business risk following the acquisition is due to the very high country risk of Pakistan, execution risk associated with the regulatory regime in Pakistan's power sector and K-Electric's weak operating efficiency, S&P said.

The acquisition significantly increases Shanghai Electric's leverage because the transaction is likely to be largely debt-funded, the agency added.

It will expose the company to higher currency fluctuation and transfer and convertibility risk, S&P said, and heightened cash flow volatility.

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