Moody's rates Panva Gas notes Ba1

Moody's Investors Service said it assigned a Ba1 senior unsecured debt rating to the proposed $150 million notes to be issued by Panva Gas Holdings Ltd. At the same time, Moody's has assigned Ba1 senior implied and issuer ratings to Panva.

The outlook is stable.

Moody's said the Ba1 rating reflects Panva's key credit strengths, which include: 1) management's proven ability to acquire majority interests in established municipal gas distribution networks and its success in restructuring these state-owned networks; 2) its well-established LPG distribution business in various Chinese cities; 3) the existence of favorable industry trends toward the privatization of municipal gas networks and the rise in LPG and city gas usage; 4) its wide geographical diversification; 5) a growth strategy focused on expanding - through acquisitions - its city piped gas supply business; 6) management's ability to exercise investment and financial discipline in its pursuit of new acquisitions; and 7) its sound financial profile, but which would be weakened by a debt-funded acquisition strategy.

At the same time, the rating reflects: 1) the company's relatively short operating history and small scale in China's city gas as well as LPG wholesale and retail markets; 2) the risks associated with integrating a large number of new acquisitions and investments; 3) exposure to China's evolving and uncertain regulatory and operating environments; 4) potential revenue and cash flow volatility due to the one-off non-recurring nature of connection fees generated via pipeline construction, and where pricing is under downward pressure; and 5) concerns that the company's expansionary capex spending program will deplete its cash position, which - given the weakness in back-up liquidity arrangements - may not be enough to mitigate unforeseen and unexpected market interruptions.

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