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June 18 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings says that Hong Kong-based Cheung Kong Infrastructure Holdings Limited’s (CKI, A-/Stable) consortium-led acquisition of AVR Afvalverwerking B.V. (AVR) has no immediate impact on its ratings.
CKI’s rating headroom is limited by its funds from operations (FFO) interest coverage being below the negative threshold of 5x at 3.9x at FYE12. However, we expect CKI’s FFO interest coverage to improve in 2013-2015 to around 5x, as assets acquired from 2011 (the largest of which were Northumbrian Water and Wales & West Utilities) gradually increase their cash contributions to CKI.
CKI’s share of the acquisition would amount to around HKD3.4bn (EUR332.5m), which Fitch believes CKI would fund with a mix of debt and available cash on hand (cash of HKD7bn at FY12). This also assumes HKD150m-HKD200m of annual dividend inflows from AVR against debt assumed for the transaction should it go ahead. Given the limited headroom against the FFO interest coverage guidelines, which Fitch considers as one of the key measures for CKI’s current ‘A-‘rating, any additional materially debt-funded acquisitions could result in negative rating action.
AVR is the leading Dutch energy from waste company, processing waste and recycling residual waste into new raw materials, or turning it into green energy in the form of electricity, heat and steam. It has a market share of around 23% by incineration volume in the Netherlands. It benefits from stable earnings through its long-term contracts to process waste with municipalities and commercial customers, as well as from its off-take agreements for the green energy it generates.
AVR operates through its two plants in Rozenburg (close to Rotterdam) and Duiven which together have the capacity to process 1,700 kilo tonnes per year, the largest among waste treatments plants in Europe. The proposed acquisition is subject to various regulatory approvals, with a target closing date in Q313. The proposed acquisition of AVR follows on from CKI’s purchase earlier this year of Envirowaste, one of the two vertically integrated waste service companies in New Zealand.
CKI’s has a 35% share in a consortium comprising Cheung Kong Holdings Limited (CKH) also taking a 35% share, Power Assets Holding Limited (PAH) with 20% and Li Ka Shing Foundation Limited (LKSFL) with 10%. The consortium is set to acquire 100% of AVR for around HKD9.7bn (EUR940m).