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Taipower suffers a ratings downgrade after policy change

State-run Taiwan Power Co (Taipower, 台電) yesterday saw its ratings outlook changed to "negative" from "stable" by Moody's Investors Service following a government decision to freeze electricity rates amid high fuel prices.

Moody's gave Taipower an "A1" issuer rating and an "Aaa.tw" national scale rating, while affirming the company's TW-1 short-term national scale rating, the ratings agency said in a statement.

The change reflected the ratings agency's concern over Taipower's "financial profile and cash flow generating capability" in the near term, Moody's said, adding that the action would affect up to NT$235 billion (US$7.3 billion) in debt securities issued by the power company.

"Without a tariff increase to compensate for the hike in fuel costs, the company's liquidity profile will be weakened further," Ken Chan (陳冠中), an assistant vice president and analyst at Moody's, said in the statement.

Taipower's financial profile has been affected by the government's plan late last year to freeze tariffs on water, electricity, liquified petroleum gas, gasoline and natural gas to ease inflationary pressures amid surging oil prices.

The company estimated at the time that it would suffer a loss of NT$25 billion (US$769.7 million) last year if electricity rates were not raised to reflect rising fuel costs.

Chan said Taipower was at risk of a further ratings downgrade "if its operating performance weakens further, due to lower electricity demand or higher fuel costs, but without a near-term tariff increase."
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