Fitch lowers China Energy Engineering rating to 'BBB+', maintains stable outlook
Investing.com -- Fitch Ratings has downgraded the Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating of China Energy Engineering Corporation Limited (CEEC) to 'BBB+' from 'A-', while maintaining a Stable Outlook. The rating downgrade, announced on Friday, April 11, 2025, follows a similar action taken by Fitch on April 3, 2025, when it lowered China's sovereign rating to 'A/Stable' from 'A+/Negative'.
CEEC's rating, as per Fitch's Government-Related Entities (GRE) Rating Criteria, is two notches below China's sovereign rating due to a support score of 30 out of a maximum 60 and a Standalone Credit Profile (SCP) of 'bb-'. Fitch considers CEEC's state-owned parent, China Energy Engineering Group Co., Ltd. (CEEG), as an intermediate holding company without significant operations or substantial debt.
CEEG, which is 90% owned by the State-owned Assets Supervision and Administration Commission (SASAC) and 10% by the National Social Security Fund, held 45.12% of CEEC at the end of 2024. CEEC accounted for almost all of CEEG's revenue, profit, debt, and assets. SASAC maintains strict oversight of CEEC through CEEG, significantly influencing the company's operations, strategic direction, and investment choices.
CEEC benefits from steady financing provided by policy banks and state-owned banks, supporting its growth domestically and internationally. The company has also completed several debt-to-equity swap programs with backing from major state-owned financial institutions to lessen its debt load. The state has provided substantial support to CEEG, including capital injections.
CEEC plays a dominant role in coal-fired power generation in China, despite the country's shift towards renewables. It is a key component of China's energy planning and holds a leading position in the renewable energy construction market. Fitch considers the risk of a CEEC default to be 'Strong' due to the company's active role as a domestic bond issuer and its high profile as a state-owned engineering and construction firm internationally.
CEEC's energy construction businesses, including conventional and renewable-energy projects, are expected to drive its growth in the coming years. The share of energy construction projects out of total new construction contracts increased to 68% in 2024, up from 49% in 2021. CEEC has expanded its renewable power generation business to an installed capacity of over 15GW at the end of 2024, compared with 2.6GW at the end of 2021.
CEEC's SCP of 'bb-' reflects its robust business profile, characterized by a large operational scale and dominance in key market segments. The company's EBITDA net leverage increased to over 8x in 2023-2024 from below 6x in 2021 due to rising investments. Fitch expects net leverage to rise further to 9x-10x during 2025-2028 as CEEC continues expanding its renewable power capacity.
Fitch notches CEEC's IDR two levels below China's Long-Term IDR, reflecting its strong status as a GRE. CEEC's support scores match those of other large SASAC-owned E&C companies that have leading or dominant positions in their respective niche market segments.
Fitch's Key Assumptions for CEEC include revenue growth of 2.0%-5.8% in 2025-2028, an EBITDA margin of 6.5%-6.6% in 2025-2028, and annual Capex of CNY25 billion-43 billion in 2025-2028.
Factors that could lead to positive or negative rating action include changes in the Chinese sovereign rating and changes in the likelihood of support from the Chinese government. For the sovereign rating of China, Fitch outlined similar sensitivities in its rating action commentary on April 3, 2025.
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