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Fitch Assigns Final 'A-' to CK Hutchison Holdings' Notes
October 13, 2016 / 6:01 AM / a year ago

Fitch Assigns Final 'A-' to CK Hutchison Holdings' Notes

(The following statement was released by the rating agency) SINGAPORE/HONG KONG, October 13 (Fitch) Fitch Ratings has assigned CK Hutchison International (16) Limited's USD750m 1.875% guaranteed notes due 2021, USD500m 2.750% guaranteed notes due 2026 and CK Hutchison Finance (16) (II) Limited's EUR1bn 0.875% guaranteed notes due 2024 a final rating of 'A-'. The senior unsecured notes are unconditionally and irrevocably guaranteed by CK Hutchison Holdings Limited (CKHH, A-/Stable) and rank pari passu with its other senior unsecured borrowings. The notes are issued mainly for refinancing purposes. The final ratings on the notes follows receipt of documents conforming to information already received and is in line with the expected rating assigned on 28 September 2016. KEY RATING DRIVERS 1H16 Results In-Line with Expectations: CKHH's financial and operating results for the six months ended June 2016 are broadly within Fitch's expectations. Reported results were negatively affected by foreign exchange movements against CKHH's reporting currency of the Hong Kong dollar. The group's port operations registered lower throughput due to a combination of slightly weaker trade volumes and competition in certain markets. Its retail operations, particularly the health and beauty segment, continued to perform well. Same-store sales shrank in Asia, but earnings in the segment were supported by continued organic growth in the region and Europe, including the UK. The reported EBITDA benefitted from the performance of CKHH's infrastructure investments, led by its subsidiary Cheung Kong Infrastructure Holdings Limited (A-/Stable), and 3 Group Europe in telecommunications, but this was partially offset by weakness in the energy segment, Husky Energy, due to low oil prices. 3 Group Europe continued to generate positive free cash flows (after capex and license fees). Dividend receipts from associates and joint ventures during 1H16 also broadly conform to our expectations. Diversified Businesses Underpin Stability: CKHH's ratings reflect its strong business profile, geographical diversification and stable cash flow generation from its high-quality ports, retail, infrastructure, energy and telecommunications businesses. No single business division accounts for more than 40% of EBITDA. The infrastructure and ports businesses provide visible, recurring cash flows. Stable Financial Profile: We expect CKHH's financial profile to remain stable, with FFO-adjusted net leverage remaining below 4.0x in 2016-2018, barring significant debt-funded acquisitions or a major increase in dividend payments. CKHH's reported financial performance is exposed to the effects of currency volatility, as seen in 2015 and 1H16. The company mitigates such risks through broadly matching the denomination of debt with the currency of its underlying assets. 3 Italia-Wind Merger Cleared: The European Commission has cleared the proposed merger of Italian mobile operator, 3 Italia, and VimpelCom Ltd's (BB+/Stable) Italian operation, Wind Telecom S.p.A (Wind) on 1 September 2016. Fitch had incorporated this merger in its forecasts as a non-cash joint-venture format as proposed by the company, and based on the merger completing by end-2016. We expect 3 Group Europe's UK business to focus on improving operational efficiency and competitive positioning within the UK market, including securing adequate and reasonably priced spectrum for its operations, after European Union competition authorities blocked 3 Group Europe's proposed acquisition of O2 UK. Capital-Intensive Business: CKHH's infrastructure, ports and telecommunications businesses are capital intensive and push up leverage, which constrains the overall ratings. There is also an element of structural subordination of cash flows, especially in the utilities infrastructure assets, given the level of debt at the asset owning level and that the operating cash flows of these businesses can only be accessed via dividends. Strong Liquidity; Access to Funding: CKHH's ratings are supported by its robust liquidity profile and ease of access to capital. Reported cash and cash equivalents were HKD154bn at end-June 2016, and debt maturities are well-laddered. CKHH has strong access to capital markets for its capital needs. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for the issuer include: - Moderate Fitch-adjusted revenue growth in 2016-2017 - Fitch-adjusted EBITDA margins of around 20% in 2016-2017 - Wind transaction in Italy completes in 2016 - No dividends from Husky Energy in 2016-2018, given the cash flow management initiatives of this company amid the low oil and gas price environment - Dividend pay-out ratio of 30%-40% in 2016-2017 - No major acquisitions or disposals RATING SENSITIVITIES Negative: Developments that may, individually or collectively, lead to negative rating action include: - FFO-adjusted net leverage exceeding 4.0x on a sustained basis - Substantially negative free cash flow after acquisitions and disposals - Significant change in business mix and capital structure management that are adverse to its credit risk profile - A weakening in the quality or decreased quantity of recurring cash flows. No positive rating action is expected in the near-term due to CKHH's business profile. Contact: Isabelle Katsumata Director +65 6796 7226 Fitch Ratings Singapore Pte Ltd 6 Temasek Boulevard 35-05 Suntec Tower Four Singapore 038986 Secondary Analyst Renee Lam Director +852 2263 9971 Committee Chairperson Buddhika Piyasena Senior Director +65 6796 7223 Date of Relevant Rating Committee: 11 July 2016 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage - Effective from 17 August 2015 to 27 September 2016 (pub. 17 Aug 2015) here Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis (pub. 29 Feb 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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