RPT-Fitch Affirms HK's Hutchison Whampoa at 'A-'; Outlook Stable
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Sept 25 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has affirmed Hong Kong-based Hutchison Whampoa Limited's (Hutchison) Long-Term Issuer Default Rating (IDR) at 'A-' with a Stable Outlook, and its Short-Term IDR at 'F2'.
Fitch has also affirmed Hutchison's foreign-currency senior unsecured rating at 'A-', and the rating of the USD2bn, USD1bn and EUR1.75bn subordinated hybrid capital notes guaranteed by Hutchison at 'BBB'.
KEY RATING DRIVERS
Diversified business, stable cash flow: Hutchison's 'A-' rating profile is supported by its geographical and business diversification, and its stable cash inflow. Hutchison's European business was the biggest contributor (35%) to its total EBITDA in 2012, while the other remaining regions accounted for less than 18% each. No single business division accounted for more than 25% of Hutchison's total EBITDA. Hutchison's retail, property and port divisions provide stable cash flow after capex, and Hutchison receives regular dividends from Cheung Kong Infrastructure Holdings Ltd (CKI) and Husky Energy Inc.
Capital intensive divisions: Hutchison's ratings are moderated by its leverage profile and its continuous capex in its ports and telecom businesses in Europe. In the past 4.5 years, Hutchison has spent a cumulative HKD50bn and HKD27bn on its European telecom and global port businesses, respectively, and these together accounted for nearly 70% of its total cumulative capex.
3G Europe no longer cash drain: EBITDA of 3 Group Europe had been insufficient to cover its capex, averaging HKD11bn p.a., in the past 4.5 years. We expect this situation to reverse from 2014, though there may be occasional shortfalls in the event of major equipment upgrade.
ParknShop Disposal Neutral: Hutchison's potential disposal of the ParknShop supermarket business is consistent with its strategy to exit mature businesses and reinvest in growth areas and/or more stable cash-flow generating regulatory assets. If the potential sale eventuates, Fitch expects Hutchison to continue to be on the lookout for acquisitions that fit its strategies.
Deleveraging continues: Hutchison has been deleveraging by growing its EBITDA (or FFO) and keeping its net debt stable. Its FFO-adjusted net leverage improved to 3.6x in 2012 from 4.1x in 2011. We expect deleveraging to continue in 2013 due to strong EBITDA growth from its underlying divisions. However, we do not expect significant deleveraging beyond the FFO-adjusted net leverage level of 3.2x recorded for the 12 months ended 30 June 2013 due to Hutchison's asset recycling strategy.
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- FFO-adjusted net leverage exceeding 4.5x without rapidly deleveraging afterwards
- Materially negative free cash flow after acquisitions and disposals
- A sharp increase in cash drain from the 3G segment
Positive: No positive rating action is expected in the foreseeable future due to the capital intensity, competitive landscape and the investment style of Hutchison's businesses.
No equity credit has been assigned to the USD2bn perpetual capital securities issued in October 2010 and 50% equity credit has been assigned to the USD1bn and EUR1.75bn perpetual capital securities issued in May 2012 and May 2013 respectively. This is in line with the agency's criteria for the treatment of corporate hybrids.
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