Barefoot Investor: Outlook for Asian utilities stable, but challenges are ahead, says S&P

Although the credit quality of the majority of Asia's utilities companies is likely to remain stable over the next 12 months, some potentially challenging issues are ahead, according to Standard & Poor's Ratings Services.

In an industry report card titled, "Outlook For Majority Of Asian Utilities Is Stable, But Some Challenges Are Ahead," released Thursday, Aug 25, S & P said electricity, gas, and water companies benefit from favorable industry factors and demographic trends that point to increasing demand for utility services in the region.

Its credit analyst Allan Redimerio said economic growth in the region was faster than the world average, and domestic populations were large with low electricity consumption and urbanisation was increasing.

Utilities companies in Japan, on the other hand, are facing tougher situations, due to the March 11 earthquake, tsunami, and the developments stemming from the Fukushima nuclear plant crisis, said Redmerio.

The potentially difficult issues ahead are the uncertain global economic growth, sustained increase in fuel costs, fuel sources and the competition for them, expansion opportunities, and the significant debt maturities and capital expenditures, he said.

"Asian utilities face significant debt maturities over the next two to three years.

"We estimate the amount averages about US$34 billion per year between 2012 and 2014 for the utilities that we rate in the region. We also think that refinancing risk is rising due to the global economic uncertainty,” he said.

Redimerio said an economic decline alone was unlikely to result in downgrades of utility companies.

Since electricity demand is not particularly elastic, declines in usage may not be as large as the overall economic contraction, he said.

“The more pressing issue is the ability of utilities to adapt to the changing economic and financial environment.

“Some countries in the region, such as Singapore, Thailand, and Philippines, rely heavily on export-driven income, and a global slowdown may affect their economic growth,” he said.(


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