OREANDA-NEWS. Fitch Ratings has today affirmed Stanwell Corporation Limited's (Stanwell) Long-Term and Short-Term Issuer Default Ratings (IDR) at 'AA' and 'F1+' respectively. The Outlook is Stable.

KEY RATING DRIVERS
Strategic 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 Stanwell's obligations, Fitch views the strategic, operational and financial links to be sufficiently strong to warrant equalisation of Stanwell's ratings with those of the state.

Integrated with the State: Queensland Treasury Corporation (QTC; AA/Stable) - the state borrowing authority - provides Stanwell with long-term funding and short-term liquidity. The state also effectively controls the appointment of Stanwell's board, its capex and its dividend policies.

Standalone Credit Profile: Stanwell's standalone credit profile reflects its largely merchant generation business and substantial generation capacity in Queensland. Its financial profile reflects the quality of its assets and access to competitive fuel supply sources. Its credit profile also benefits from some retail exposure and earnings diversification from gas sales and incremental revenue stream from coal exports, which provides some cushion to its variable merchant generation revenue. Its profile also benefits from an increase in electricity demand following the commencement and ramp-up of gas liquefaction capacity in the state.

Stanwell is a Queensland state-owned power generator, with a total generation capacity of 4,178 megawatts across 10 generation sites, from a mixture of hydro, coal- and gas-fired power generation.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Funding support from QTC
- Dividend payout ratio of 100%.

RATING SENSITIVITIES
Positive: 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: Developments that may, individually or collectively, lead to negative rating action include:
-Downgrade in Queensland's ratings
-Weakening of linkages between Queensland and Stanwell, 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.