Rating Action: Moody's upgrades Mong Duong Finance's senior secured rating to Ba2; changes outlook to stableGlobal Credit Research – 07 Sep 2022Hong Kong, September 07, 2022 — Moody's Investors Service has upgraded Mong Duong Finance Holdings BV's USD senior secured notes rating to Ba2 from Ba3.At the same time, Moody's has revised the outlook to stable from positive.The rating action follows Moody's upgrade of Vietnam's ratings to Ba2 from Ba3, with an outlook revision to stable from positive on 6 September.For full details on the sovereign rating action, please refer to this press release:https://www.moodys.com/research/Moodys-upgrades-Vietnams-rating-to-Ba2-outlook-changed-to-stable–PR_468174 "The rating action on Mong Duong Finance reflects Moody's assessment that the notes' rating is constrained by the sovereign rating. Therefore, the upgrade of Vietnam's rating results in a higher rating for the notes," says Mic Kang, a Moody's Vice President and Senior Credit Officer. Mong Duong Finance is a finance entity whose credit profile is closely linked to AES Mong Duong Power Company Limited (MDP), which owns and operates the underlying power project, because of several structural features. MDP operates with the assurance that the government will make reliable and timely payments to MDP, if and when required, under the Government Guarantee and Undertaking Agreement (GGU) and the Build Operate Transfer (BOT) contract. RATINGS RATIONALE The Ba2 rating reflects MDP's fully contracted cash flow under a long-term power purchase agreement (PPA) and solid financial profile relative to the rating. The PPA contains a robust tariff structure allowing for the recovery of costs and realization of capital returns, so long as material offtaker and fuel supplier risks do not emerge. The government's commitment to MDP under the GGU and the BOT contract supports the predictability of the company's operating cash flow, while mitigating MDP's risk exposure to its single offtaker, Vietnam Electricity, and its sole coal supplier, Vietnam National Coal-Mineral Industries Group (Vinacomin). Under the GGU and the BOT contract, the government guarantees the performance of all payment obligations and all financial commitments of Vietnam Electricity and Vinacomin. MDP is eligible for compensation should Vinacomin be unable to supply coal. MDP's ownership structure will change, subject to approvals from stakeholders — including the government — following The AES Corporation's (Baa3 stable) announcement that it signed an agreement to sell its entire 51% stake in MDP to a consortium led by a US-based investor in January 2021. The sale process is still ongoing. The terms of the notes require new owner(s) to meet the conditions for a qualified transferee, which include (1) a tangible net worth of at least $300 million or ratings of Ba1 or above by Moody's or other rating agencies, and (2) substantial experience operating fossil fuel power plants. Moody's expects MDP's average debt service coverage ratios (DSCR) to be 1.3x-1.5x during the tenor of the notes. This level of credit metrics will support MDP's credit quality. MDP recorded a DSCR of 1.5x-1.6x in 2020-21. ENVIRONMENTAL, SOCIAL AND GOVERNANCE CONSIDERATIONSMong Duong Finance's exposure to governance risk is neutral to low. But governance risk could increase if the sponsor profile or commitment declines as a result of the potential ownership change.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING The stable outlook on the rating reflects Moody's expectation that MDP's operating and financial performance will continue to support its credit profile over the next 12-18 months, while at the same time, the rating remains constrained by the sovereign rating. Moody's could upgrade the rating if Vietnam's sovereign ratings are upgraded; and (1) the government's strong commitment to MDP's power project remains intact; (2) MDP maintains its solid operations and financial leverage; and (3) MDP's sponsor profile does not weaken. Moody's could downgrade the rating if (1) Moody's takes a negative rating action on the sovereign; (2) MDP's DSCR falls below 1.1x during the amortization period; and/or (3) MDP's sponsor profile weakens as a result of the potential ownership change, contrary to Moody's expectation. The principal methodology used in this rating was Power Generation Projects Methodology published in January 2022 and available at https://ratings.moodys.com/api/rmc-documents/361400. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology. Mong Duong Finance Holdings BV is the issuer of the USD notes. Mong Duong Finance is indirectly owned by (1) AES Mong Duong Holdings B.V. (51%), a subsidiary of The AES Corporation (Baa3 stable); (2) POSCO Energy, which is owned by POSCO (Baa1 stable); and (3) Stable Investment Corporation (19%), which is owned by China Investment Corporation, a sovereign wealth fund of the Government of China (A1 stable). The ultimate shareholders of Mong Duong Finance mirror that of AES Mong Duong Power Company Limited (MDP). MDP is a limited liability joint venture that owns and operates two sub-critical coal-fired power plants with a total capacity of 1,120 megawatts. The plants are located around 220 km east of Hanoi (50 km north-east of Ha Long City in Quang Ninh Province). REGULATORY DISCLOSURES For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found on https://ratings.moodys.com/rating-definitions. 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