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Web Exclusive | June 2013

Strong energy demand to support performances: S&P

Standard & Poor's says that Asia-Pacific utilities are well placed to benefit from the region's increasing appetite for energy. But evolving regulations, fuel shortages, rising costs, and lagging recoveries could put brakes on performance, says a report by Standard & Poor's. The report, titled 'Managing Fuel Access, Costs, And Recoveries Is Key To Keeping Asia-Pacific Utilities' Lights On,' has been published by Standard & Poor's Ratings Services.

The overall favorable economic conditions and an expanding middle class in most of the region will likely underpin Asia's growing demand for energy. However, much will depend on the prices and the mix of fuel, and companies' ability to recover the associated costs.

Also, utilities in several Asian countries have to contend with evolving regulations and tariff policies, and expansion-related capital expenditure. Generally, the strong position of the rated utilities in their respective markets should enable them to benefit from rising demand and at least sustain their cash flows over the next 12 months, said Standard & Poor's credit analyst Rajiv Vishwanathan.

Standard & Poor's expects the Asia-Pacific utilities sector to remain largely stable over the next 12 months. About 80 per cent of the rated utilities in the region have a stable rating outlook. Exceptions are utilities in India (fuel and policy issues), Japan (uncertain policy and fuel costs), and Korea (new investments).

The ratings on individual issuers depend on their financial and competitive positions and level of government support, if any. Asia's demand for energy is likely to remain strong in 2013, given supportive economic growth prospects. The region's large power deficit makes demand somewhat inelastic, and this could provide a cushion in unexpected downside scenarios. The residential sector accounts for a large part of the demand in countries such as Malaysia and Thailand.

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