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���������ֳ� - Hong Kong/Shanghai - 07 Apr 2025: ���������ֳ� has affirmed China-based Gansu Province Electric Power Investment Group Co., Ltd.'s (GPI) Long-Term Foreign-Currency Issuer Default Rating and senior unsecured rating at 'BBB'. The Outlook is Stable. ���������ֳ� has simultaneously withdrawn all the ratings on GPI.

GPI's ratings are linked to, but not equalised with, ���������ֳ�'s internal assessment of the creditworthiness of Gansu province under our Government-Related Entities (GRE) Rating Criteria. This reflects the 'Very Likely' support from the government to GPI, Gansu's sole provincial energy investment platform.

GPI is fully owned by the Gansu State-owned Assets Supervision and Administration Commission (SASAC) through Gansu State Assets Investment Group (GSAI). We look through GSAI and apply the GRE criteria directly to GPI, as GSAI, a key public-mission GRE with strong funding access, has no control over GPI and is unlikely to prevent GPI from receiving timely government support.

���������ֳ� has chosen to withdraw the ratings for commercial reasons.

Key Rating Drivers

'Strong' Decision-Making and Oversight: The Gansu SASAC directly appoints GPI's key management, oversees the company's operation and approves major investment, funding and strategic plans, despite the indirect ownership.

'Strong' State Support Record: GPI has received consistent tangible support, including subsidies, asset injections and policy support. The Gansu provincial government authorised GPI to develop its strategic Changle coal-fired power project and supported GPI's negotiation of Changle's power purchase agreement, enhancing GPI's profitability. The government also supported GPI's divesture of several non-core assets. All those measures helped GPI to maintain a healthy standalone credit profile (SCP) at 'bb-'.

'Strong' Preservation of Policy Role: GPI is the only power generator controlled by the Gansu government and plays a critical role in both safeguarding local power supply and smoothing renewable-energy exports. GPI accounted for around 25% of the province's thermal capacity as of end-2024.

Thermal power addresses peak local demand and balances renewables' intermittency, allowing power to be safely exported via ultra-high-voltage (UHV) transmission lines. This is especially important for provinces like Gansu, which is rich in natural resources and has renewable generation as a key economic activity. Still, substitutes are available to reduce the impact if GPI defaults

'Strong' Contagion Risk: GPI is a high-profile GRE, given its policy mandate. It is also among the largest borrowers under the Gansu SASAC, with a substantial amount of onshore bonds that are guaranteed by its intermediate parent, GSAI, the direct parent for many large provincial GREs. We believe a default by GPI would risk the parent's credibility and impair funding access for other provincial GREs that rely on the same market.

'bb-' SCP: We forecasts a rise in GPI's EBITDA net leverage to 8.2x on average in 2024-2028, from 7.5x at end-2023, as capex stays high on GPI's target to nearly double its capacity installations by 2028 from the 2023 level. Weak power tariffs and rising curtailment risks in Gansu may continue to stress GPI's near-term EBITDA, before stronger power transmission capability - including the Longdong-Shandong UHV that recently started to operate - allows more Gansu-produced power to be exported. Contribution from new power plants will also support earnings growth. Strong funding access will keep GPI's financial flexibility adequate.

GPI's SCP benefits from the stability provided by the Changle project, but is limited by a lack of geographic diversification beyond Gansu province and GPI's relatively small scale. In Gansu, the consumption of locally produced power relies heavily on exports. Nevertheless, the Changle project has relatively higher utilisation hours, more stable on-grid tariffs and lower, less volatile fuel costs. These favourable terms may be extended upon contract renewal, as the power imported by Hunan province from Changle is cheaper than locally produced power.

Peer Analysis

GPI's ratings are notched from ���������ֳ�'s internal assessment of Gansu province's creditworthiness.

GPI's government decision-making and oversight are rated 'Strong', like Jinchuan Group Co., Ltd. (Jinchuan, BBB+/Stable), reflecting the Gansu government's effective control over operations, strategies, investment decisions, and management appointments. Gansu Provincial Highway Aviation Tourism Investment Group Co., Ltd. (GHATG, BBB+/Stable) is rated 'Very Strong' due to rigorous control from the Gansu SASAC, emphasising its key role in transport infrastructure crucial for Gansu's economic growth.

Support precedents are 'Strong' across all entities, with GPI and GHATG receiving consistent government backing; GPI's support aids deleveraging, while GHATG receives substantial financial aid.

GPI's 'Strong' role in government policy preservation highlights its importance in maintaining local power supply and supporting energy transition targets, despite the presence of peer generators. GHATG also holds a 'Strong' role, as its financial distress could hinder transportation infrastructure progress. Jinchuan's 'Strong' position is bolstered by its significant market share in China's nickel production and major copper smelting operations.

Contagion risk for all entities is assessed as 'Strong'. GPI and GHATG are prominent issuers under the Gansu government due to policy-intensive mandates, while Jinchuan is one of Gansu's largest GREs by revenue and assets. A default by any could have a negative impact on investor sentiment and hinder local GREs' ability to raise funds in the capital market.

Key Assumptions

���������ֳ�'s Key Assumptions Within the Rating Case for the Issuer

-- Power capacity to increase by 80% by 2027 from the end-2023 level; renewables to account more than 40% of end-2027 power capacity.

-- Utilisation hours of wind, solar and coal-fired power (for local consumption) to stay lower than the 2023 level; hydropower utilisation higher than the 2023 level; utilisation hours of Changle coal-fired power plants at 5,000-5200 hours per year.

-- For the coal-fired power generated for local consumption in Gansu, dark spread to narrow as power tariff may fall faster than coal prices; dark spread for Changle coal-fired power plants to stay generally resilient.

-- Gross profit margin for wind and solar power generation to narrow in 2024 and 2025 as intensified market trading and high curtailment rates weaken tariffs, before stabilising over the medium term as power grid infrastructure allows for more exports.

-- Gross profit margin for hydropower generation to improve on strong waterflow in 2024, before stabilising over the medium term.

-- Annual capex of CNY6 billion-8 billion in 2024-2027.

-- Pro rata equity injections from minority shareholders of Changle coal-fired power plants; CNY1.9billion of share placement in 2024.

-- No common dividend paid.

RATING SENSITIVITIES

Not applicable, as we have withdrawn all GPI's ratings.

Liquidity and Debt Structure

Adequate Liquidity: GPI reported CNY4.26 billion in short-term debt as of end-9M24, against cash and cash equivalents of CNY3.74 billion. We expect short-term debt to be mostly serviced by refinancing, including the CNY500 million of 10-year onshore notes already issued in January 2025, in addition to onshore undrawn bank facilities of CNY57.9 billion as of end-9M24, mostly from state-owned banks. Most of GPI's debt comprises unsecured bank loans, and 90% of debt was long term as of end-9M24.

Issuer Profile

GPI is the only power generator owned by the Gansu government. Coal-fired power dominates GPI's fuel mix.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

GPI's rating is linked with ���������ֳ�'s internal assessment of Gansu province.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

to access ���������ֳ�'s latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. ���������ֳ�'s macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. ���������ֳ�'s ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on ���������ֳ�'s ESG Relevance Scores, visit /topics/esg/products#esg-relevance-scores.

Following the withdrawal of GPI's ratings, ���������ֳ� will no longer provide the associate ESG Relevance Scores.

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APPLICABLE MODELS

Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

• Corporate Monitoring & Forecasting Model (COMFORT Model), v8.1.0 (1)

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