S&P: Shenhua Energy on watch

S&P said it placed a AA- long-term corporate credit rating on China Shenhua Energy Co. Ltd. (Shenhua Energy) on CreditWatch with negative implications.

The agency also said it placed the A+ long-term corporate credit and issue ratings on Shenhua Hong Kong Ltd. on CreditWatch with negative implications.

S&P also said it placed the ratings of Shenhua Energy and Shenhua Hong Kong on CreditWatch mainly because it sees negative financial implications from the planned merger of their parent company, China Shenhua Group with the more heavily indebted China Guodian Corp.

Based on 2016 data, the agency said it estimates the pro forma debt-to-EBITDA ratio of the combined group at 4.8x, compared with 2.9x of Shenhua Group before the proposed merger.

This will likely have a negative impact on the credit profile of Shenhua Energy, S&P said. The new business profile has increased scale and enhanced diversity in terms of power fuel types, the agency said.

Increasing synergies between the coal and power segments could also ensue, resulting in less volatility in profitability, S&P said.

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