Reuters logo
Fitch Rates Cheung Kong Property's MTN Programme 'A-'
October 3, 2016 / 3:07 AM / a year ago

Fitch Rates Cheung Kong Property's MTN Programme 'A-'

(The following statement was released by the rating agency) HONG KONG, October 02 (Fitch) Fitch Ratings has assigned Cheung Kong Property Holdings Limited's (CKP; A-/Positive) USD3bn Euro medium-term note (MTN) programme a rating of 'A-'. The notes under this programme will be issued by CK Property Finance (MTN) Limited and will be unconditionally and irrevocably guaranteed by CKP. The programme is rated at the same level as CKP's senior unsecured rating because the notes issued under the programme will constitute direct and senior unsecured obligations of the company. KEY RATING DRIVERS Solid Rental Income: CKP generated HKD5.1bn in rental income mainly through its high-grade Hong Kong investment property portfolio in 2015. The properties were valued at HKD120bn at end-2015, which covers net debt of HKD16.4bn by 7.3x, and enjoyed an operating margin of 88%. Fitch expects positive rental reversions for CKP's office portfolio, as these properties are mostly located in the Central district, where supply will remain tight in 2016. Hotel Margins Under Pressure: The company's hotel portfolio generated HKD4.0bn in revenue in 2015. The Hong Kong hotel segment, which is positioned in the mid-range and targets the mass-market, enjoyed an occupancy rate of 88%. Operating margins of CKP's hotels fell to 32%, from 42%, as the average room rate declined due to lower tourist arrivals and the ongoing renovation of the Horizon Suite Hotel in Hunghom, which is expected to be completed in 2016. Fitch expects the hotel segment margins to remain under pressure for the rest of the year, but EBITDA is likely to increase in 2016 due to the full-year consolidation of the hotels previously owned by the Hutchison Group. Significant Mainland Property Development: China property development generated 47% of CKP's operating profit in 2015. The company has been prudent in its land acquisition and expansion strategy in the past and Fitch expects CKP to maintain this business strategy, with property sales covering its property development expenditure, allowing the company's property development business to remain cash-flow positive. Fitch expects CKP to generate positive cash flow of HKD5bn-10bn from property development in 2016. Strong Development Record: CKP has displayed resilience through several industry downturns during its long operating history, showing strong cash-flow management and maintaining broad funding diversity. Fitch expects the company to continue leveraging on its scale, rich operational experience and low funding cost, while focusing on maintaining positive free cash-flow and achieving stable margins. Potential Acquisitions: Fitch expects CKP to seek investment opportunities to increase its recurring income in the medium- to long-term. The scale of such acquisitions may be substantial, as reflected by the joint bidding of CKP and Cheung Kong Infrastructure Holdings Limited (A-/Stable) for the London City Airport in early 2016, which CKP did not win. Depending on scale, funding requirements and investment return prospects, Fitch believes such acquisitions may pressure CKP's credit metrics. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for the issuer include: - rental income growth of 40%-50% in 2016, due to restructuring, and 7%-8% in 2017 - hotel income growth of 25%-30% in 2016, due to the restructuring, and 3%-5% in 2017 - EBIT margin of 34%-36% over 2016-2017 (2015: 37%) - property development sale proceeds to cover expenditure and capex RATING SENSITIVITIES Positive: Future developments that may, individually or collectively, lead to positive rating action include: - net-debt/recurring EBITDA sustained below 3.5x (2015: 2.7x) - net-debt/investment properties sustained below 25% (2015: 14%) - recurring EBITDA/gross interest expense sustained above 4.5x (2015: 4.4x) Negative: Future developments that may, individually or collectively, lead to negative rating action include: - The Outlook will be revised from Positive to Stable if CKP makes substantial new investments in the next 18 months and as a result, cannot maintain its credit metrics as stipulated in the positive guidelines. LIQUIDITY Ample Liquidity: CKP had a cash balance of HKD44.5bn at end-2015 and committed undrawn credit facilities of HKD6.5bn against short-term borrowings of HKD5.8bn. The company's debt duration is concentrated in three years, matching the lease duration of its investment property assets. Fitch expects CKP to maintain its reliable access to the bond and loan markets for refinancing at favourable interest cost. Contact: Primary Analyst Rebecca Tang Associate Director +852 2263 9933 Fitch (Hong Kong) Limited 19/F, Man Yee Building 68 Des Voeux Road, Hong Kong Secondary Analyst Vanessa Chan Director +852 2263 9559 Committee Chairperson Su Aik Lim Senior Director +852 2263 9914 Date of Relevant Rating Committee: 2 June 2016 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on 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 Additional Disclosures Solicitation Status here Endorsement Policy here ail=31 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 © 2016 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