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Fitch downgrades Shanghai Electric on increased leverage

Fitch Ratings downgraded Shanghai Electric (Group) Corp. and unit Shanghai Electric Group Co. Ltd.'s long-term foreign-currency issuer default rating and foreign-currency senior unsecured rating to A- from A.

The outlook on the companies is stable.

The downgrade reflects the group's increased leverage due to the consolidation of construction and services company SuZhou THVOW Technology Co. Ltd. which it acquired in 2018.

Fitch expects the group's funds from operations-adjusted net leverage to rise on the back of the consolidation, to around 1.5x-2.0x in 2019, from 0.4x in 2018 and negative 0.7x in 2017.

The leverage is unlikely to settle below 1.0x in the near term due to the company's ongoing transition in which it may resort to more acquisitions to offset weak market demand for its main business of manufacturing coal-fired-power equipment, Fitch said.