May 19, 2017 / 5:22 AM / 8 months ago

Fitch Affirms Swire Pacific at 'A-'; Outlook Stable

(The following statement was released by the rating agency) HONG KONG, May 19 (Fitch) Fitch Ratings has affirmed Hong Kong-based Swire Pacific Limited's Long-Term Foreign-Currency Issuer Default Rating (IDR) at 'A-' with a Stable Outlook. Fitch has also affirmed Swire Pacific's foreign-currency senior unsecured rating at 'A-'. A full list of rating actions is at the end of this commentary. The affirmation reflects the mixed performance of its subsidiaries, including the stable rental income of Swire Properties Limited (A/Stable), and weak profitability at its aviation and marine-services divisions. The company will increase its capex for investment properties and acquisition costs for the beverage division in 2017, which will lead to a higher leverage ratio and a lower investment-property EBITDA interest coverage ratio. Fitch expects Swire Pacific's credit metrics to improve after 2017 as capex reduces and recurring income rises following the expansion of the beverage division and its investment property portfolio in the medium term. KEY RATING DRIVERS Stable Rental Income: Swire Properties, which is 82% owned by Swire Pacific, provides stable and predictable rental income to the parent. Gross rental income from its investment properties rose 0.5% in 2016, which resulted in a strong investment property EBITDA coverage ratio of 6.0x. Gross rental income from Hong Kong remained stable at HKD8.6 billion in 2016 due to the moderate growth in office rents, which almost offset a slight decline in the retail rental income. Swire Properties has a well-established Grade A office portfolio in Hong Kong with a 99% occupancy rate in 2016. The company also repositioned its tenant mix at the Pacific Place Mall by introducing more food and beverages outlets and reducing the floor space for luxury items. Weak Performance of Cathay Pacific: Swire Pacific's 45%-owned associate, Cathay Pacific group, had an attributable loss of HKD259 million in 2016, compared with a profit of HKD2.7 billion in 2015, due to strong competition in the aviation industry, which put intense downward pressure on passenger yield. Premium class demand also deteriorated. The performance of the sector may remain weak in 2017 in view of the continuing lacklustre demand for premium class travel, strong competition and the strong US dollar. Corporate transformation with the intention to be more competitive in both cost and service quality, and gradual exit from the fuel hedging strategy may improve profitability in 2018. Expanding Territory for Beverage Franchise: Attributable profit of the beverage division declined 17% to HKD813 million in 2016, driven by weaker profitability in Mainland China. A weaker sales mix and promotional pricing led to lower revenue per unit in the mainland. Profitability in the US, Hong Kong and Taiwan remained stable. Swire Beverages will increase its coverage of China's population to 49% from 31% after the completion of the acquisition of additional territory rights in mid-2017. A better sales mix, new product launches, and stable sales volume growth in China should lead to slightly better profitability for the division in 2017. Reduced Marine-Services Capex: The marine services division's attributable loss widened to HKD3.0 billion in 2016 from HKD1.3 billion in 2015, as low oil prices continued to adversely affect exploration and production activity. The fleet's utilisation rate dropped to 63.4% in 2016 from 74.9% in 2015, after peaking at 90% in 2012. Swire Pacific reduced its capex for this division by 37% to HKD946 million in 2016 amid the weaker demand. The capex commitment for 2017-2019 is HKD2.3 billion, as the oversupply of offshore vessels will continue to pressure on utilisation and daily charter hire rates. Increased Structural Subordination: Swire Properties is relying less on its parent for funding. Its external borrowings accounted for 80% and 68% of the company's total as of end-2016 and end-2015, respectively, compared with 26% at end-2011. This trend increases Swire Pacific's structural subordination to external parties in access to the stable operating cash flows of Swire Properties. DERIVATION SUMMARY The ratings on Swire Pacific are driven by its 82%-owned subsidiary, Swire Properties, which is the biggest contributor to the underlying profit of Swire Pacific. Swire Properties provides stable and predictable rental income to Swire Pacific, which results in sufficient investment-property EBITDA/cash interest coverage. Swire Pacific is rated at one-notch below Swire Properties, due to its structural subordination to external parties in access to the stable operating cash flows of Swire Properties. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Swire Properties' total rental income growth at 2%, 2% and 4% in 2017, 2018 and 2019, respectively - Total revenue growth rates of 35% in 2017, 0% in 2018 and 8% in 2019 - EBITDA growth rates of 28% in 2017, 9% in 2018 and 8% in 2019 - Capex (including equity investment in JV companies and acquisitions) to peak at HKD22 billion-24 billion in 2017, declining to HKD5 billion-7 billion a year in 2018-2019 RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - No positive rating action is envisaged over the next 18-24 months until the company's financial metrics improve to the levels of similarly rated peers. Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - Material decline of Swire Pacific's shareholding in Swire Properties - Negative rating action on Swire Properties - Swire Pacific's future capex causes a sustained deterioration in its credit metrics relative to those of Swire Properties LIQUIDITY Ample Liquidity: Swire Pacific had HKD6.5 billion in cash and HKD23.7 billion in committed undrawn facilities at end-2016, more than enough to cover its short-term debt of HKD8.3 billion. None of its debts is secured, which gives it flexibility in financing options. Swire Pacific has a spread-out debt maturity profile with less than 25% of debts falling due in the next two years. FULL LIST OF RATING ACTIONS Swire Pacific Limited -- Long-Term Foreign-Currency Issuer Default Rating affirmed at 'A-'; Outlook Stable -- Senior unsecured rating affirmed at 'A-' -- Rating on Swire Pacific's MTN programme affirmed at 'A-' -- Rating on issues from Swire Pacific MTN Financing Limited affirmed at 'A-' -- Swire Pacific Limited's USD500 million 5.5% notes due August 2019 affirmed at 'A-' Contact: Primary Analyst Rebeca Tang Associate Director +852 2263 9933 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Vanessa Chan Director +852 2263 9559 Committee Chairperson Su Aik Lim Senior Director +852 2263 9914 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation 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. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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

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