January 6, 2017 / 10:07 AM / 9 months ago

Fitch Affirms Hong Kong's MTR at 'AA+'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, January 06 (Fitch) Fitch Ratings has affirmed Hong Kong-based rail transit network operator MTR Corporation Ltd's (MTRC) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) at 'AA+'. The Outlook is Stable. The agency has also affirmed MTRC's Short-Term Foreign-Currency IDR at 'F1+' and senior unsecured rating at 'AA+'. MTRC's ratings and the Stable Outlook reflect the company's strong ties with the Hong Kong Special Administrative Region government (AA+/Stable) and MTRC's strategic role as Hong Kong's sole rail operator. Fitch has switched to rating MTRC as a public-sector entity due to its strategic role, from rating it as a corporate entity. However, the change in criteria has not resulted in any change in the rating. KEY RATING DRIVERS Ratings Equalised with Government: MTRC's ratings are equalised with the Hong Kong government due to its strong linkage and high strategic importance. There is an extremely high likelihood MTRC would receive extraordinary government support, if needed. Legal Status Attribute Midrange: The Hong Kong government is MTRC's largest and controlling shareholder, with a 75.4% stake as at end-June 2016. The government has pledged to continue to hold at least 50% shareholding in company for at least 20 years from the date of the IPO (up to 2020). The Mass Transit Railway Ordinance (MTR Ordinance) grants MTRC an exclusive franchise to operate the Mass Transit Railway, the Kowloon-Canton Railway and to construct and operate any extension to the Mass Transit Railway for 50 years until 2057. Legally speaking, the MTR Ordinance states that MTRC can be in default. Strategic Importance Attribute Stronger: MTRC is Hong Kong's sole government-owned railway operator, bearing a highly strategically important role to improve Hong Kong's public transport and implement the government's transportation policy. MTRC maintained a dominant market share of Hong Kong's franchised public transport market, as its network covers Hong Kong's key commercial and residential locations. MTRC's extensive network coverage also marks its importance to the government's stated objective of providing a rail-based transit network as the backbone of the domestic transport system. Integration Attribute Stronger: Due to the public nature of the business, the policy and financial ties between HKSAR government and MTRC are strong. Despite there being no direct guarantee or operational subsidies provided by government, to maintain MTRC's financial robustness, the HKSAR government has repeatedly demonstrated its ability and willingness to provide tangible financial support to the company. Such support could be in the form of property development rights, dividend waiver or capital grants. Control Attribute Stronger: The government is the majority and controlling shareholder and appoints MTRC's chairman due to its level of shareholding. The oversight of the company's business is vested in the board, and day-to-day management of business is delegated to professional managers. The MTR Ordinance also empowers the government to appoint three additional directors that only the government can remove from the board. Strong Standalone Financials: MTRC maintains a strong financial profile and we expect the company to continue generating stable recurring cash flow (around 40% EBITDA margin), supported by its stable core business and resilient property rental and management business. MTRC is financially sound with a low leverage ratio, but its credit profile is distorted by high capex and a debt-funded special dividend of HKD25.9bn paid in two equal tranches in 2016 and 2017 to fund the government's construction of the Express Rail Link. The first tranche was paid on 13 July 2016 and the second tranche will be paid in 2H17. Fitch expects MTRC's debt/Fitch-calculated EBITDA to increase to around 2.5x in 2017, from 1.3x at end-2015. and for debt/capital to be 27% in 2017, compared with 11.7% in 2015. RATING SENSITIVITIES Positive rating action on the Hong Kong sovereign, in conjunction with continued strong government support, would result in a similar change in MTRC's ratings. A downgrade of the sovereign's rating, significant changes leading to a dilution in government ownership and control or weakening links with the government - including the strategic importance of MTRC to Hong Kong and government policy support - could trigger a rating downgrade. Any rating action on MTRC's IDR would result in similar rating action on its senior unsecured rating. Contact: Primary Analyst Lin Pei Associate Director +852 2263 9912 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Terry Gao Director +852 2263 9972 Tertiary Analyst Cecilia Chan Associate Director +852 2263 9905 Committee Chairperson Guido Bach Senior Director +49 69 768 076 111 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria International Local and Regional Governments Rating Criteria - Outside the United States (pub. 18 Apr 2016) here Rating of Public-Sector Entities - Outside the United States (pub. 22 Feb 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1017265 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below