S&P puts CLP Power on watch

Standard & Poor's said it placed the A+ long-term and A-1 short-term corporate credit ratings on CLP Power Hong Kong Ltd. and the A long-term and A-1 short-term corporate credit ratings on its parent CLP Holdings Ltd. on CreditWatch with negative implications.

The watch follows CLP Power's announcement on Jan. 7 that it concluded an agreement with the Hong Kong government on revised terms, which takes effect on Oct. 1, 2008.

According to the agency, CLP Power's future earnings are likely to materially decline under the new operating agreement because one of the key changes is a reduction in the permitted rate of return on the company's future investments to 9.99% from the current 13.5% to 15%.

CLP Power's ability to respond to this change is constrained by a lack of flexibility over its capital spending, given the company's commitment to provide cleaner and stable power to Hong Kong, S&P said. A lower permitted return is likely to further limit its ability to raise equity if needed and therefore is likely to lead to a more debt-weighted funding strategy, the agency noted.

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