S&P Global Ratings revised its outlook on Shanghai Electric (Group) Corp., or SEC, and its subsidiary, Shanghai Electric Group Co. Ltd to negative from stable and affirmed both companies' issuer credit ratings at A.
The rating agency expects the weak power generation equipment market will weigh on the EBITDA and working capital of both companies, resulting in negative discretionary cash flow and an increase in adjusted debt leverage.
"The drop in demand for generation equipment has resulted in a higher net debt balance because SEC used cash to finance its higher working capital usage," S&P said. "The company increased its payment terms to suppliers but that was insufficient to offset the rise in accounts receivable and inventory."
S&P said the ratings affirmation reflects SEC's important role to the Shanghai government, which will mitigate the risk from falling demand for coal-fired power generation equipment. SEC is 61.95% owned by the Shanghai government.
This S&P Global Market Intelligence news article may contain information about credit ratings issued by S&P Global Ratings, a separately managed division of S&P Global. Descriptions in this news article were not prepared by S&P Global Ratings. The original S&P Global Ratings documents referred to in this news brief can be found here.