(The following statement was released by the rating agency)
Nov 16 - Fitch Ratings has affirmed Hong Kong-based Kowloon-Canton Railway Corporation's
(KCRC) Long-Term Foreign and Local Currency Issuer Default Ratings (IDR) at 'AA+',
respectively. The Outlook is Stable. The agency has also affirmed KCRC's Short-Term Foreign
Currency IDR at 'F1+' and its foreign currency senior unsecured rating at 'AA+'.
KCRC's ratings are equalised with those of the Government of the Hong Kong
Special Administrative Region (HKSAR, 'AA+'/Stable/'F1+') due to its strong
strategic and operational ties with the government.
KCRC is a 100%-owned government-controlled entity, with concession payments from
the 77% government-owned MTR Corporation (MTRC, 'AA+'/Stable/'F1+') as its
primary source of cash inflows for debt servicing. KCRC is essentially a passive
pass-through entity given that the company ceased rail operations in December
2007, when the issuer granted a service concession to MTRC to operate the KCRC
network. KCRC's main task is to channel cash inflows from MTRC to service its
existing debt obligations and to fund remaining capex for projects previously
managed by KCRC. The highly predictable cash inflows (in the form of concession
payments) from MTRC and the Hong Kong government's continuing priority in
maintaining a financially robust MTRC underpin KCRC's credit profile.
The objective of its sole shareholder, the Government of the HKSAR, is to
maintain a financially sound KCRC for the benefit of all its stakeholders. A
managing board, comprising senior civil servants and government officials,
closely monitors KCRC's financial performance. MTRC provides additional
administrative support to KCRC's small management team under an outsourcing
The annual concession payment from MTRC includes a fixed component of HKD750m
plus an additional variable component of MTRC's revenue generated from KCRC's
railway assets. Fitch estimates the variable component to be over HKD800m per
annum in the next three years. Given its limited capex needs, KCRC has adequate
free cash flow to gradually amortise its debt. As at end-2011, KCRC's net debt
amounted to HKD13.7bn, down from HKD14.4bn a year ago.
What Could Trigger A Rating Action?
Negative: Future developments that may individually or collectively lead to
negative rating action include:
- Negative rating action on the Hong Kong sovereign
- Evidence of diminishing support from/or weakening ties to the HKSAR Government
Positive: Future developments that may individually or collectively lead to
positive rating action include:
- Positive rating action on the Hong Kong sovereign