May 13 (The following statement was released by the rating agency)
Fitch Ratings has assigned Hutchison Whampoa Limited's (Hutchison, A-/Stable) EUR 1.75bn 3.75% perpetual capital securities a final rating of 'BBB'.
The notes are issued by Hutchison Whampoa Europe Finance (13) Limited and guaranteed by Hutchison on a subordinated basis.
Fitch accords 50% equity credit to the proposed securities in its evaluation of Hutchison's capital structure and leverage. The assignment of the final rating follows the receipt of documents conforming to information already received, and is in line with the expected rating assigned on 7 May 2013.
The securities are rated two notches below Hutchison's Issuer Default Rating (IDR) in accordance with Fitch's 'Treatment & Notching of Hybrids in Nonfinancial Corporate & REIT Credit Analysis' criteria. The maximum equity credit is restricted to 50% as any coupons deferred are cumulative. Given the language on replacement intent in the securities' indenture, Fitch does not consider May 2038, when there will be a cumulative 100 basis point step-up in distribution, as the effective maturity date of the securities in assessing the equity credit accorded.
Key Rating Drivers
Stable cash flow generation: Hutchison's non-3G telecommunications operations, including its ports, property and retail, provide the company with a stable source of cash flow. In addition, Hutchison receives dividends from Husky Energy, and stable income from Cheung Kong Infrastructure's (CKI) infrastructure assets.
Diversified business profile: Hutchison's rating is underpinned by its geographical and business diversification. Its earnings are well spread out with no single operating segment or geographical region accounting for more than 35% of its EBITDA in 2012.
Well-positioned core operations: Hutchison's core operations benefit from solid business positioning. Fitch estimates its port operation commands 12%-15% of global container traffic. The company is also one of the world's largest health and beauty retailers with over 10,000 retail outlets worldwide.
Capital-intensive businesses: Hutchison's current financial leverage, as measured by adjusted debt net of cash/operating EBITDAR, of 3.5x (2011:3.7x) reflects the highly capital- intensive nature of its businesses: ports, retail, real estate, and telco. Fitch expects Hutchison to continue its efforts to reduce leverage over the medium term.
Ample liquidity: Hutchison's strong liquidity profile is supported by cash and liquid balances of HKD131.45bn and committed undrawn credit limits of HKD5.81bn at end-2012. Its consolidated cash and liquid balance at end-2012 was sufficient to repay all outstanding debt maturing through to 2015. By end-2014, Hutchison will see around 19% of its consolidated debt (including debt from non-controlling shareholders and the portion of perpetual capital securities treated as debt by Fitch) mature, and Fitch expects the company to continue to have access to capital markets for its refinancing needs.
Negative: Future developments that may, individually or collectively, lead to negative rating action include
-irreversible increase of leverage
-a sharp increase in cash drain from the 3G segment
Positive: None expected over the next 12 to 24 months as the company's leverage is a rating constraint.