Fitch Affirms CS Energy at 'AA'; Outlook Stable

(The following statement was released by the rating agency)SYDNEY/SINGAPORE, March 01 (Fitch) Fitch Ratings has today affirmed CS Energy Limited's (CS Energy) Long-Term and Short-Term Issuer Default Ratings (IDR) at 'AA' and 'F1+' respectively. The Outlook is Stable.KEY RATING DRIVERSStrategic Linkages Intact: The ratings are aligned with those of the state of Queensland (Queensland; AA/Stable), in line with Fitch's parent-subsidiary rating methodology. Whilst the state does not explicitly guarantee CS Energy's obligations, Fitch views the strategic, operational and financial links to be sufficiently strong to warrant equalisation of CS Energy's ratings with those of the state. Integrated with the State: Queensland Treasury Corporation (QTC; AA/Stable) - the state borrowing authority - provides CS Energy with long-term funding and short-term liquidity. The state also effectively controls the appointment of CS Energy's board, its capex and its dividend policies.Weak Standalone Credit Profile: CS Energy's standalone credit profile reflects its merchant generation business and consequent exposure to wholesale pool prices. It also reflects the difficult operating conditions for merchant generators in Queensland, where there is surplus generation capacity. This is partly offset by an increase in electricity demand following the commencement and ramp-up of gas liquefaction capacity in the state. CS Energy is a Queensland state-owned power generator, with a trading generation capacity of 4,035 megawatts across four sites, from a mixture of coal-fired and pumped storage hydro power generation.KEY ASSUMPTIONSFitch's key assumptions within our rating case for the issuer include:- Funding support from QTC - No dividend payoutRATING SENSITIVITIESPositive: Future developments that may, individually or collectively, lead to positive rating action include: -Upgrade in Queensland's ratings, provided the current linkages with state remains intact. Negative: Future developments that may, individually or collectively, lead to negative rating action include: -Downgrade in Queensland's ratings -Weakening of linkages between Queensland and CS Energy, including privatisation.For the sub-sovereign rating of Queensland, the following sensitivities were outlined by Fitch in its Rating Action Commentary of 2 September 2015:Negative rating action could occur if a significant, unexpected increase in Queensland's debt levels occurs along with a large deterioration in its operating performance. Forecast operating margins do not allow much room for unexpected shocks. An upgrade in the short term is unlikely as Queensland's operating and current margins would need to improve unless it reduces its debt more significantly.. Contact: Primary AnalystSajal KishoreDirector+612 8256 0321Fitch Australia Pty Ltd, Level 15, 77 King Street, Sydney, NSW 2000Secondary AnalystEvelyn YehAssociate Director+65 6796 7245Committee ChairpersonBuddhika Piyasena Senior Director+65 6796 7223Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Leni Vu, Sydney, Tel: +61 2 8256 0304, Email: leni.vu@fitchratings.com.Additional information is available on www.fitchratings.com.Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362Additional Disclosures Dodd-Frank Rating Information Disclosure Form https://www.fitchratings.com/creditdesk/press_releases/content/ridf_frame.cfm?pr _id=1000208Solicitation Status https://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1000208Endorsement Policy https://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&det ail=31ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.