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Power Assets Holdings ‘A-‘ Rating Affirmed; Outlook Positive

          HONG KONG (S&P Global Ratings) July 23, 2018--S&P Global Ratings today affirmed its 'A-' long-term issuer credit rating on Power Assets Holdings Ltd. (PAH). The outlook on the long-term rating is positive. PAH is a Hong Kong-based company primarily investing in global regulated electric and gas utility assets.
          We affirmed the rating because we expect PAH to maintain strong financial metrics and continue to benefit from the transparent and stable regulatory regimes the company invests in. 
          In our view, PAH's business strength will continue to be underpinned by its geographically diversified portfolio of electric and gas utility assets in developed markets, mainly the U.K., Hong Kong, and Australia. These assets operate under transparent and consistent regulatory regimes and generate steady and predictable cash flows within each regulatory period. All the company's regulated businesses have completed their tariff resets by 2017 with no new resets until 2020.
          We expect PAH to remain in a net cash position after paying significant dividends in the first half of 2018. PAH's sizable cash holdings, stemming from the IPO proceeds of Hongkong Electric Co. Ltd. in 2014, have reduced after the company's recent acquisitions and payment of special dividends in 2017 and 2018. In 2017, PAH joined a consortium led by CK Infrastructure Holdings Ltd. (CKI) to buy Australia-based pipelines and electricity network owner DUET Group; PAH acquired 20% of DUET for A$1.4 billion. We estimate PAH would have more than Hong Kong dollars (HK$) 12 billion in cash after a paying special dividend of HK$6.00 per share in April 2018, or HK$12.8 billion in total. At the end of 2017, it reported total gross debt of HK$7.2 billion.
          In our view, PAH's financial risk profile will remain strong over the next two years although its balance sheet is likely to become more leveraged because of ongoing exploration of new regulated assets. In June 2018, PAH announced its joint proposal with CKI and CK Asset Holdings to acquire 100% of APA Group at A$11.0 per share for a total of A$12 billion. APA is the largest natural gas transmission pipeline owner in Australia. We did not incorporate this transaction into our base-case forecast on PAH as it is subject to approvals from shareholders and various authorities. The consortium also has not confirmed the final contribution of each member.
          The positive outlook on the rating reflects the outlook on its ultimate holding company CK Hutchison Holdings Ltd. (CKHH), which through CKI, owns 38% of PAH. We expect PAH will maintain its strong finances. In addition, we believe the company will continue its links with CKI in the regulated utility asset space and remain a co-investor.
          We will revise the outlook on PAH to stable following a similar action on CKHH and CKI. 
          We will raise the rating on PAH if the ratings on CKHH and CKI improve while PAH maintains its stand-alone credit profile above CKHH's.