(The following statement was released by the rating agency)
Jan 15 - Standard & Poor’s Ratings Services said today that the rating on Cheung Kong Infrastructure Holdings Ltd. (CKI; A-/Stable/--; cnAA/--) is not affected by the proposed acquisition of Barra Topco. Barra Topco, mainly through its subsidiary, EnviroWaste Services Ltd., operates a diversified, vertically integrated waste management business in New Zealand.
We believe CKI will have sufficient cash and internal sources to fund this NZ$490 million (approximately Hong Kong dollars [HK$] 3.18 billion) acquisition without raising its leverage. We estimate the company had about HK$7 billion in cash and bank deposits as of the end of December 2012. We expect this acquisition to contribute a steady cash flow to CKI from this year. Although waste management is unlike the infrastructure assets that CKI has typically invested in, EnviroWaste’s predictable demand, strong market position, and above-average profit margin underpin the solid business fundamentals of this new asset.
In our opinion, CKI’s above-average appetite for acquisitions is a key rating weakness for the company. The strong to excellent business profiles and stable cash flow generation of the assets it usually targets partially moderate the weakness. In addition, we view the company’s willingness to use equity and subordinate debt in financial management as positive for its credit stability.