TEXT-Fitch rates CKI's USD 300 million hybrid securities 'BBB'
(The following statement was released by the rating agency)
Feb 22 - Fitch Ratings has assigned a 'BBB' rating to the USD300million fixed-rate callable perpetual securities issued by Bank of New York Mellon (BNYM, 'AA-'/Stable/'F1+') on a fiduciary basis on behalf of Cheung Kong Infrastructure Holdings Limited (CKI, 'A-'/Stable). The hybrid securities are rated two notches below CKI's Long-Term Foreign-Currency Issuer Default Rating (IDR).
BNYM, as the fiduciary, will use the proceeds from the issue of hybrid securities to purchase new shares of CKI. Fitch believes that CKI may use the proceeds from issue of shares for refinancing of existing debt and/or to pursue investment opportunities.
The hybrid securities are effectively subordinated as CKI's obligations under the swap agreement with BNYM are subordinated to CKI's other obligations except parity securities (including its existing USD1bn hybrid securities) and any junior securities (currently share capital). Coupon payments on the hybrid securities, which is the responsibility of CKI under the swap agreement with BNYM, are deferrable at management's discretion if no distributions on parity or junior securities have been made in the three months prior to coupon payment dates. No distributions can be made on parity or junior securities until deferred coupons are paid. Deferred coupons are cumulative and accrue interest. This three-month look back negates any equity credit. Thus, in its analysis, Fitch will treat the hybrid's principal and coupon payments as 100% debt.
The rating of the hybrid securities at two notches below CKI's IDR is based on standard loss absorption provisions and in accordance with Fitch's 'Treatment and Notching of Hybrids in Non-financial Corporates and REIT Analysis' criteria dated 15 December 2011.
CKI's ratings, however, have limited headroom. Fitch may downgrade CKI's ratings if its funds flow from operations interest coverage falls below 5.0x on a sustained basis, which may happen due to further substantial debt funded investments.
The company's current ratings reflect its stream of income from largely investments in regulated utilities. Its ratings however are tempered by its increased financial leverage due to debt-funded investments as well as modest interest coverage. For more information, see "Fitch Affirms Cheung Kong Infrastructure Holdings Ltd at 'A-'; Outlook Stable" dated 03 August 2011 available on www.fitchratings.com.
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