Feb 06 - Standard & Poor’s Ratings Services today assigned its ‘A+’ long-term issue rating and ‘cnAAA’ long-term Greater China credit scale rating to the proposed issue of 10-year U.S.-dollar fixed-rate, senior unsecured notes by Sun Hung Kai Properties (Capital Market) Ltd.
The notes would be a drawdown under the US$5 billion debt issuance program that Sun Hung Kai Properties Ltd. (SHKP; A+/Stable/—; cnAAA) guarantees. SHKP will use the notes proceeds for general working purposes. The rating on the notes is subject to our review of the finalized issue documentation.
In Standard & Poor’s opinion, the recent accelerated increase in borrowings, combined with a less certain property trading market in Hong Kong, could weaken SHKP’s modest financial risk profile. Combining the proposed drawdown with SHKP’s US$775 million issuances since October 2011, the company’s adjusted total debt would increase by more than US$1 billion from Hong Kong dollar (HK$) 64 billion (about US$8.23 billion) as of June 30, 2011.
We expect SHKP’s EBITDA interest coverage to remain well above our downgrade trigger of 7x for the next 12 months. Nevertheless the headroom on the ratio of funds from operations to total debt above 25% would be reduced after the recent increase in the company’s debt. Despite the significant fund-raising from medium-term-note draw downs, we expect SHKP to continue to manage its liability with discipline, in line with its record.
The rating on SHKP, a Hong Kong-based property developer and investor, reflects the steady growth in the company’s high-quality investment property portfolio in Hong Kong and China. SHKP has the largest and most diversified investment property portfolio among its peers in Hong Kong. The company also has a leading market position in Hong Kong for property development and leasing, and a well-recognized brand that allows it to price at a premium. Further rating strengths include SHKP’s solid execution of its growth strategy, conservative and consistent financial management, strong liquidity, and ample financial flexibility.
SHKP’s exposure to the Chinese real estate market, which we view as more risky and less mature than that of Hong Kong, partly offsets these strengths. The cyclical and competitive nature of the Hong Kong and Chinese property markets puts pressure on the company’s sales and margin during down-cycles.
— Corporate Ratings Criteria 2008, April 15, 2008