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惠誉:予长和(00001.HK)拟发行欧元票据“A-”评级

Fitch: 00001.HK proposes to issue euro note "A -" rating

久期財經 ·  Oct 27, 2021 17:48

Long term financial news, October 27th, Fitch awarded CK Hutchison Europe Finance (21) Limited the proposed euro guaranteed note "A -" rating. The note will be issued in two tranches. The proposed Advanced unsecured Notes will be unconditionally and irrevocably guaranteed by Cheung Kong Hutchison Industrial Co., Ltd. ("CK Hutchison", "CK Hutchison", 00001.HKjue / stable) and will enjoy the same rights as other senior unsecured loans of CK Hutchison. CK Hutchison Europe Finance (21) Limited is a wholly owned subsidiary of CK Hutchison.

CK Hutchison's rating and outlook reflect its strong business profile, geographical diversification and stable cash flow from its high-quality port, retail, infrastructure, energy and telecommunications businesses, as well as the sound financial management performance of its management. Fitch expects CK Hutchison's revenue and profitability to gradually recover in 2021 and 2022, following a 12 per cent decline in Fitch-adjusted EBITDA in 2020.

Key rating drivers

Business is gradually recovering:Since the second half of 2020, economic activity has rebounded with the relaxation of epidemic-related restrictions, leading to an increase in port throughput and improved retail revenue in some European markets and China. However, the recovery in 2021 is likely to be affected by outbreaks in Southeast Asia and a slower-than-expected retail recovery in China. The deterioration in telecom profitability in 2021 could have an impact on its Italian and UK operations, as well as the impact of the sale of telecom tower assets. A small number of outbreaks may disrupt port operations, which remains a challenge.

Slow recovery of telecom services:This may slow the recovery of CK Hutchison Group Telecom Holdings Limited (CKHT, BBB+/ stable) EBITDA due to increased competition in CK Hutchison's main markets, Italy and the UK. In the first half of 2021, the Italian business contributed 53% of the CKHT base EBITDA (pre-IFRS 16), followed by the UK business, accounting for 17%. CKHT's group revenue and underlying EBITDA (pre-IFRS 16) fell by 2 per cent and 3 per cent respectively in the first half of 2021, excluding gains of 2.6 billion euros from the sale of tower assets and 1.7 billion euros of goodwill impairment.

Revenue at Wind Tre, CKHT's wholly owned telecoms subsidiary in Italy, fell 10 per cent in the first half of 2021 compared with the same period a year earlier, while underlying EBITDA fell by 7 per cent. The decline is due to a decline in wholesale revenue, which is due to CK Hutchison's exclusive national roaming agreement with Iliad, which has set up its own network. However, CKHT management expects Wind Tre's second brand "Very" Mobile to become more attractive in prepaid areas and network improvements, thereby enhancing Wind Tre's competitiveness.

Indonesian mergers and acquisitions:CK Hutchison plans to complete the merger of its Indonesian telecom entity PT Hutchison 3 Indonesia and the second largest mobile operator PT Indosat Tbk (BBB/ negative rating Watch) by the end of 2021. CK Hutchison will have 33 per cent of the effective shares in the merged entity, the same as Ooredoo Q.P.S.C, Indosat's controlling shareholder. Fitch believes the deal will strengthen the competitive position and size of the new entity and create long-term synergies, particularly with regard to the eventual launch of 5G. Fitch expects CK Hutchison's cash layout to be $387 million.

Infrastructure returns are low and stable:Stricter regulations are already in force, especially in the UK and Australia. The new price review periods for British water companies and gas companies, which began in 2020 and 2021 respectively, offer lower returns and stricter incentives. Fitch believes these changes could reduce the cash flow generated by operators and put pressure on their ability to pay dividends.

Fitch believes that UK power operators will be under the same pressure in the face of a new price cycle starting in 2023. However, Fitch believes that as the impact on CK Hutchison's dividend inflows will be staggered over the next few years, the risk of low returns will be mitigated, and Fitch's foreman and CK Infrastructure, a key entity in the infrastructure sector, will continue to generate low but stable cash flow after the regulation of the new rules.

Asset sales boost financial position:CK Hutchison's financial position was boosted in the first half of 2021 as the company completed the sale of base stations in Austria, Denmark, Ireland, Sweden and Italy from December 2020 to June 2021, earning 6.3 billion euros, although EBITDA declined due to increased base station service costs. They are all part of a 10 billion euro transaction, including 8.6 billion euros in cash and 1.4 billion euros in Cellnex Telecom S.a. (BBB-/ stable) shares. The sale of UK base stations is currently awaiting regulatory approval.

Leverage improvement:The company plans to use the proceeds from the sale of base stations for capital expenditure requirements, deleveraging and shareholder returns. Details of the use of the proceeds have not yet been finalized, but Fitch expects CK Hutchison to maintain its conservative and prudent financial management record. Fitch expects FFO adjusted net leverage to improve to less than 4x in 2021, well below Fitch's negative rating sensitivity of 4.5x.

Structural secondary risk reduction:CK Hutchison's port, infrastructure and telecoms businesses are capital-intensive and highly leveraged, limiting ratings. There are also some structural dependencies on cash flow, particularly with regard to utilities and infrastructure assets, where operating cash flow can only be obtained through dividends because of the debt at the asset ownership level. However, cash and dividend inflows from infrastructure or non-CKHT operations can offset the interest burden on the parent company, thereby mitigating structural dependency risks.

Summary of rating derivation

CK Hutchison's rating, supported by its diversified businesses-including geographical location and market segments-provided it with stable cash flow and supported its strong business performance. A conservative and sound record, prudent financial management and a coherent strategy all support the company's business situation.

Few peers have a similar business model because CK Hutchison is a conglomerate with infrastructure, port, retail and telecoms operations. However, CK Hutchison is similar in some respects to CLP Holdings Limited Limited (CLP Holdings Limited, 00002.HKMagi A / stable), although CLP Holdings Limited's business situation is stronger, supported by a stable return on its regulated assets and a healthier financial position in the past. CLP Holdings Limited's regulatory assets are mainly concentrated in his key business in Hong Kong, China Light and Power Company Limited (CLP Power Hong Kong Limited, "CLP Power", A / stable).

Key rating hypothesis

The key rating assumptions of Fitch in this issuer rating study include:

-adjusted Fitch revenue growth in low single digits between 2021 and 2022

-Fitch adjusted EBITDA profit margin for the period from 2021 to 2022 is 24% and 25%.

-the annual dividend payout rate is about 30%.

-Annual capital expenditure for the period from 2021 to 2022 is HK $40 billion and HK $36 billion, respectively.

-No major acquisitions or disposals between 2021 and 2022 (Fitch does not take into account its current UK base station asset sale)

Rating sensitivity

Future development factors that may alone or jointly lead to positive rating action by Fitch include:

If CK Hutchison's business profile remains the same

-the FFO-adjusted net leverage ratio remains at or below 3.5x; and

-Free cash flow continues to be positive after acquisitions and dividends

Future development factors that may alone or jointly lead to negative rating action by Fitch include:

-FFO adjusted net leverage ratio continues to be higher than 4.5x.

-negative free cash flow after acquisition and disposal

-significant changes have taken place in business portfolio and capital structure management, which are disadvantageous to their credit risk profile.

-decline in the quality or quantity of recurrent cash

Liquidity and debt structure

Strong liquidity and availability of funds:CK Hutchison's rating is supported by its strong liquidity position and easy access to capital. At the end of June 2021, the company reported cash and cash equivalents of HK $182.1 billion (HK $156 billion at the end of 2020), while short-term debt was HK $74.5 billion. The debt matures in a more orderly manner. CK Hutchison has strong capital market access and good banking relations.

Issuer profile

CK Hutchison is a diversified enterprise group listed in the Hong Kong Special Administrative region of China. The company's main business includes telecommunications, which is mainly composed of mobile services, infrastructure, retail and ports in Europe, Hong Kong, China and Southeast Asia.

The translation is provided by third-party software.


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