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Fitch: Wharf's Low Leverage, Caution in China Support Rating
March 21, 2017 / 7:34 AM / 7 months ago

Fitch: Wharf's Low Leverage, Caution in China Support Rating

(The following statement was released by the rating agency) HONG KONG, March 21 (Fitch) The Wharf (Holdings) Limited's (A-/Positive) low leverage and continued prudence in its China property development business support its rating, Fitch Ratings says. The company's net debt decreased 49% to HKD24bn following the disposal of its telecom business, Wharf T&T. As a result, leverage, measured by the ratio of net debt to investment property value, fell to 7% in 2016 from 15% in 2015. Fitch expects Wharf's leverage to continue to remain low given the company's prudent financial policy. Wharf's revenue from its China development property business increased 12% in 2016 with better operating margin (including subsidiaries and JV/associates) of 16.7% (+1.4 pp from 2015). Contracted sales in 2016 reached CNY31bn, exceeding management's target by 31%. Sellable resources in China for 2017 decreased to 1.6 million square metres (sq m) from 2.4 million sq m in 2016 as Wharf continued to be cautious in acquiring sites in China for development. Management has decided to keep 2017 sales target at CNY24 billion. Wharf's EBITDA rose 13% in 2016, driven by the 7% growth in EBITDA from its Hong Kong investment property portfolio and 44% rise in China property-development EBITDA, by our estimates. Wharf's Hong Kong investment-property segment was resilient amid market weakness, with positive rental reversion in 2015 and 2016. The decline in Hong Kong's retail sales slowed to 3.7% in 4Q16 from 7.5% in 3Q16 and the trend has extended in the first two months of 2017. The key growth drivers for Wharf's overall investment-property segment in 2017 and 2018 will be the two IFS-brand malls in Chongqing and Changsha in China, and the extension of the Ocean Terminal complex in Hong Kong, which are due to open in 2017. These are likely to make full-year contributions in 2018. Wharf said at its results press conference that it is considering listing some of its investment properties. The proposal is in the early stages of discussion and does not affect its rating at this moment. Wharf's investment-property portfolio accounted for about 68% of its 2016 EBITDA, with the Hong Kong investment properties contributing 61% and the China assets making up the rest. Should Wharf proceed with the proposal, Fitch will assess the rating based on the company's core business and corporate structure following the transaction. Contact: Winnie Guo Associate Director +852 2263 9969 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Chloe He Associate Director +86 21 5097 3015 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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