Xinhua Far East China Ratings today assigned an AA+ issuer credit rating to China Yangtze Power Company Co. Ltd. ("Yangtze Power" or "the Company"; SH A 600900). The company's rating outlook is stable.

The AA+ rating reflects Xinhua Far East's optimistic view on Yangtze Power's strategic position in China's power industry, in light of the favorable support it enjoys from the central government and the competitive edge it holds in respect to the availability and use of clean natural resources. The rating also reflects the Company's sound financial profile, largely a result of its strong earnings ability and its stable operating cash flow. Even so, the rating takes into account that Yangtze Power's ongoing acquisitions and rapid growth are expected to lead to large capital expenditures and mounting debt pressure in the long run.

Through the accumulation of the assets of the Three Gorges Hydropower Station, the largest hydropower plant in the world, Yangtze Power has played an important role in China's power industry. The Company is also an important vehicle to serve the broad regions in China and to carry on the country's grand west-east electricity transmission project.

The key to its position is the favorable support it enjoys from the government in respect to energy policy, taxation, and power distribution arrangements. As China's energy consumption has risen in recent years, so too has the need to utilize clean and renewable hydropower. The need to develop a national sustainable energy policy has also taken greater precedence. As a result of this, Yangtze Power enjoys not only a favorable value-added tax level, compared to that to which other coal-fired power producers are subject, but also additional tax rebates. Its revenue stream is further supported by the power distribution agreement it has secured with the local government in Yangtze Power's major service areas, namely economically buoyant central, eastern and southern China.

Yangtze Power's resource advantage has translated into a competitive edge in the market. Fueled by cheap and abundant water resources, Yangtze Power currently operates with lower marginal costs and is expected to face limited environment protection fees in the future. This advantage is particularly remarkable in the current context of surging coal prices. Moving forward, the tariff bidding system is expected to give Yangtze Power strong cost advantages, even though the progress of tariff bidding reform in China is yet uncertain.

Xinhua Far East notes that Yangtze Power possesses a sound financial profile, as reflected by its strong earning ability and in its steady operating cash flow. With average gross margin exceeding 70%, Yangtze Power is considerably more profitable than both coal-fired power and other domestic hydroelectric providers. Yangtze Power also enjoys rising economies of scale, as shown by falling sales, general and administration costs in proportion to its turnover. The Company's operating cash flow is strong, and such is bolstered by its high operating leverage and cheap power generation resources.

The new rating also takes into account the Company's increasing debt ratio in recent years as a result of the purchase of several Three Gorges Hydropower Station generators. Large capital expenditure is expected to continue up until 2015, when the Company expects to complete the acquisition of the remaining generators from its parent company. Xinhua Far East believes Yangtze Power's gross debt to total capital ratio will not fall significantly from the current level in the medium term, as its operating cash flow is not able to meet the demand of heavy capital expenditure. Nevertheless, Xinhua Far East believes that its current competitive strategic position and strong governmental support will, to a large extent, ensure a financing capability commensurate with its current rating.

Given the stable growth in demand for hydro power in China, the continuing expansion of the Company's power generation capacity and its strong financial profile, the Company's rating outlook remains stable. Its rating, however, may be upgraded to the highest rating level once it completes its acquisition plan or is able to maintain moderate levels of financial leverage by generating sufficient operating cash flow to support its future acquisitions.

China Yangtze Power Co Ltd is the largest listed hydropower generation company in China, and could become the largest in the world through continuous acquisitions from its largest shareholder -- the China Three Gorges Project Corporation, a large state-owned enterprise holding a 63% stake in the Company. In 2005, Yangtze Power's total installed capacity was 6,915 MW; this is expected to grow to 20,915 MW in 2015.

Yangtze Power is also a large cap company constituting the Xinhua/FTSE China A50 Index. As of February 24, 2006, its total market cap equaled RMB 56.1 billion with investable market cap of RMB 22.4 billion.

For the rating report summary, please visit http://www.xinhuafinance.com/creditrating .

Note to Editors:

About FTSE/Xinhua China A50 Index

The FTSE/Xinhua China A50 Index is a real-time tradable index comprising the largest 50 A Share companies by full market capitalization. Designed to meet the needs of QFIIs, it can be used as a basis for both on-exchange and OTC derivative products, mutual funds and ETFs. For daily data and further information, see http://www.xinhuaftse.com .

About Xinhua Far East China Ratings

Xinhua Far East China Ratings (Xinhua Far East) is a pioneering venture in China that aims to rank credit risks among corporations in China. It is a strategic alliance between Xinhua Finance (TSE Mothers: 9399), and Shanghai Far East Credit Rating Co., Ltd. Shanghai Far East became a Xinhua Finance partner company in 2003 and the first China member of The Association of Credit Rating Agencies in Asia in December 2003.

Capitalizing on the synergy between Xinhua Finance and Shanghai Far East, Xinhua Far East's rating methodology and process blend unique local market knowledge with international rating standards. Xinhua Far East is committed to provide investors with independent, objective, timely and forward-looking credit opinions on Chinese companies. It aims to help investors differentiate the credit risks among the corporations in China, thereby, cultivating their awareness and promoting information disclosures and transparency in China market. For more information, see http://www.xfn.com/creditrating .

About Xinhua Finance Limited

Xinhua Finance Limited is China's unchallenged leader in financial information and media, and is listed on the Mothers board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial markets and the world, Xinhua Finance serves financial institutions, corporations and re-distributors through four focused and complementary service lines: Indices, Ratings, Financial News and Investor Relations. Founded in November 1999, the Company is headquartered in Shanghai with 21 news bureaus and offices in 18 locations across Asia, Australia, North America and Europe. For more information, please visit http://www.xinhuafinance.com .

About Shanghai Far East Credit Rating Co., Ltd

Shanghai Far East Credit Rating Co., Ltd. is the first and leading professional credit rating company with comprehensive business coverage in China. It is an independent agency established by the Shanghai Academy of Social Sciences with the mission to develop internationally accepted standards for capital market in China. The company is a pioneer in conducting bond-rating business in China. For years, it has been authorized by the Shanghai branch of the PBOC to undertake loan certificate credit rating.

Since establishment, it has rated over 1,000 corporate long-term bonds and commercial papers, based on the principles of objectivity, fairness and independence. The company has also maintained over 50% market share in the loan certificate-rating sector in Shanghai for three consecutive years. With its strong local presence and knowledge, it provides investors with unique and the most insightful credit opinion. For more information, see http://www.fareast-cr.com .

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