S&P lowers Shanghai Electric view to negative

S&P said it revised the outlook on Shanghai Electric (Group) Corp. and its subsidiary, Shanghai Electric Group Co. Ltd., to negative from stable.

The agency also said it affirmed the A issuer credit ratings on the two companies and A issue ratings on the senior unsecured notes guaranteed by both companies.

The outlook revision reflects a view that Shanghai Electric's adjusted debt leverage is likely to exceed 2x if it cannot effectively control its financial discipline and manage its working capital given weakening demand for its power generation equipment, S&P said.

The company's EBITDA declined 15% in 2017 while revenue fell 6%, the agency said.

The decline was due mainly to the Chinese government's policy to switch to gas from coal for electricity generation and remove excess coal-fired power generation capacity, S&P said.

The agency said it expects the pressure from soft demand and unfavorable working capital trends to persist into 2018 and 2019, albeit to a lesser extent than in 2017.

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