TEXT-S&PBulletin: Ratings On HK Buyers Of UK Gas Assets Unaffected

Wed Jul 25, 2012 10:21pm EDT

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(The following was released by the rating agency)

HONG KONG (Standard & Poor's) July 26, 2012--Standard & Poor's Ratings Services said today that its ratings on Hutchison Whampoa Ltd. (HWL: A-/Stable/--; cnAA/--), Cheung Kong Infrastructure Holdings Ltd. (CKI: A-/Stable/--; cnAA/--), and Power Assets Holdings Ltd. (PAH: A+/Stable/--; cnAAA/--), are not affected by a proposed acquisition of MGN Gas Networks (UK) Ltd. A CKI-led consortium comprising Cheung Kong (Holdings) Ltd. (30%), CKI (30%), PAH (30%), and Li Ka Shing Foundation Ltd. (10%), has proposed to acquire MGN Gas Networks for GBP680 million (about Hong Kong dollar [HK$] 8.17 billion).

In our opinion, the proposed acquisition is consistent with Cheung Kong group's stated investment strategy. We generally view the operation of a gas distribution business in the U.K. as having an "excellent" business profile, underpinned by a generally supportive regulatory framework. The supportive framework ensures a high degree of stability and predictability of earnings and cash flows. The group has a good record of acquiring and integrating utility assets in the U.K.

We believe the consortium will have sufficient cash and internal sources to fund this acquisition. CKI's and PAH's available cash balance and bank deposits are sufficient to cover their individual financial contribution of GBP204 million (about HK$2.45 billion). CKI issued fresh equity of about HK$2.3 billion to bolster its financial resources. This is the company's third share placement in the past 12 months. HWL would own 76.39% of CKI upon the completion of CKI's latest share placement.

MGN Gas Networks owns and operates one of eight gas distribution and transmission networks in the U.K. The proposed transaction is subject to regulatory approvals, including that of the European Union competition commission. It also requires CKI and PAH to divest the majority of their stakes in Northern Gas Networks Holdings Ltd. (BBB+/Stable/--), another U.K.-based gas network operator.

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