Cash generation catching up with capex for Asian utilities: Fitch

Fitch Ratings today said credit profiles of Asian utilities are stabilising after several years of weakening. This is chiefly as a result of cash generation from past capital expenditure feeding through although capex continues to be high for most entities.

A number of markets in the region are expected to see regulatory or tariff reforms. "We expect the impact of these to be varied. While mostly neutral or beneficial, certain segments - such as China generation and city gas, can see margin pressure in the short- to medium-term," said a Fitch release.

In its report - '2014 Outlook: Asia Utilities', Fitch said leverage for the rated entities as a whole has stabilised and any increases in financial leverage in 2014 and beyond will be very modest, if any. This also results in reasonably good headroom under current stand-alone credit profiles for most rated entities.

As a consequence of stable credit profiles and strong state-linkages for some issuers, the large majority of issuers have stable outlooks. Exceptions to this are, by-and-large entities that are currently on rating watches - which are due entirely to company specific factors arising from impending M&A or similar corporate activity.

Fitch expects negative free cash generation to be high in 2014, although lower by about $10 billion for the rated issuers in aggregate compared to 2013. The sector still has very high external funding requirements to fund negative free cash flows and debt maturities. However, Fitch said liquidity was adequate to satisfactory given strong stand-alone credit profiles or state-linkages of many of the rated entities.

In the outlook report, the agency also highlights specific factors and potential developments investors should watch out for in 2014 together with rating headroom for stand-alone credit profiles and final Issuer Default Ratings (IDR) for each of the rated issuers in the region.