Moody's rates Zhejiang notes A3

Moody's Investors Service said it assigned a provisional A3 rating to the proposed medium-term note program to be issued by Zhejiang Energy International Ltd., a subsidiary of Zhejiang Provincial Energy Group Co. Ltd.

The program will be supported by a keepwell, liquidity support and equity interest purchase undertaking covenants deed from the parent company, Moody's said.

The outlook is stable.

The proceeds from the proposed notes will be used for investment and other general corporate purposes, Moody's said.

The ratings reflect Zhejiang Energy's close alignment with the Zhejiang provincial government and its high strategic importance to the local power and gas sectors, the agency said.

The provisional A3 rating is one notch lower than the company's A2 issuer rating to reflect the weakness in the priority of claims of bond investors under the keepwell structure and in the absence of a direct guarantee, Moody's said.

The ratings primarily reflect the company's high strategic importance to the local power and gas sectors and its diverse energy portfolio, the agency said.

The ratings are constrained by its weakened profitability, driven by the absence of an automatic cost pass-through mechanism in both power generation and gas operations, Moody's said.

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