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05 Dec 2003
MOODY'S AFFIRMS A3 DEBT RATINGS OF HUTCHISON WHAMPOA LIMITED; OUTLOOK REMAINS NEGATIVE
Hong Kong, December 05, 2003 -- Moody's Investors Service has affirmed the A3 debt ratings for Hutchison
Whampoa Limited (Hutchison) and its guaranteed finance subsidiaries in
response to the news that attributable peak funding for its 3G operations
may rise by approximately USD2.4 billion as a result of delays
in the deliveries of handsets. The rating outlook remains negative.
The affirmation reflects Moody's opinion that the potential rise
in peak funding for its 3G operations will not exert any imminent financial
pressure on Hutchison as funding for the additional requirement,
should it arise, will be comfortably covered by the company's
liquidity reserve of approximately USD19 billion on hand as well as the
approximately USD4 billion in committed undrawn 3G project bank loans.
The affirmation further reflects the rating agency's expectation
that H3GUK will continue to comply with its loan covenants, even
though subscriber numbers and revenues are falling short of budget because
of the handsets delay. Moody's also takes comfort that Hutchison
has pro-actively termed out some of its debts, helping lower
refinancing risks during the rating horizon. Moody's is further
of the view that Hutchison has significant financial flexibility to deal
with the refinancing, if appropriate, of any of the current
loans, including the 3G project loans.
Moody's says that handsets shortage has constrained Hutchison's
ability to secure subscribers and generate revenue. A prolonged
delay in deliveries would likely mean that the achievement of breakeven
for EBITDA would have to be significantly extended beyond 2005.
Furthermore, a drop would occur in the likelihood of the company's
credit metrics returning -- during the rating horizon -- to
a level which is more appropriate for its current rating. Moody's
expects the handsets shortage to be resolved no later than end-1Q2004.
Failing that, its ratings will be pressured since this will significantly
impact the 3G business plan for 2004 and considerably increase the likelihood
of a material extension of the EBITDA breakeven point for 3G.
The negative outlook reflects the prospective deterioration in Hutchison's
cash flow measures due to the peak funding requirements and start-up
losses associated with 3G, although -- as indicated --
the company's large liquidity reserve significantly mitigates the
near-term financial risks. Moody's notes that Hutchison's
additional capital injection and the recent buyback of KPN's 15%
stake in H3GUK has raised the company's overall exposure to 3G businesses.
In this context, the agency will closely monitor revenues and earnings
growth. Any developments indicating possible significant revenue
shortfalls or cost overruns will pressure the ratings. Furthermore,
rating pressure will emerge in the event of any incidents which have the
potential to further undermine Hutchison's liquidity reserve.
Moody's says the A3 rating continues to reflect Hutchison's well-diversified
portfolio of businesses and the strong competitive positions held by its
major businesses in their respective markets. In particular,
the ports, infrastructure and property divisions generate predictable
recurring operating cash flows. The rating further reflects management's
disciplined approach to managing financial risk, including it long-term
committed strategy of retaining large liquidity reserves for business
At the same time, these credit strengths are tempered by Hutchison's
willingness to take large calculated risks although they are always conducted
in a well thought-out manner. Additionally, management
has a track record for successfully executing business strategies and
harvesting profits at opportune moments. The rating also considers
Hutchison's low debt coverage ratios, the challenges facing
its significant 3G investments, and finally structural subordination,
to which its creditors is subject, based on the company's corporate
Hutchison Whampoa Limited, headquartered in Hong Kong, is
engaged in five core businesses -- ports and related services,
telecommunications, energy & infrastructure, retail &
manufacturing, and property & hotels. In addition to
its 87% ownership of Hong Kong International Terminals, Hutchison
is a leading port operator in the United Kingdom, operating the
Felixstowe, Thamesport and Harwich ports. It indirectly owns
33% of listed Hong Kong Electric Holdings Limited. Hutchison
is engaged in the development of properties, both in Hong Kong and
China, and holds a portfolio of good quality investment properties
in Hong Kong. It has an 85% stake in listed Cheung Kong
Infrastructure Holdings Limited.
Moody's Investors Service Pty Ltd
612 9270 8100
VP - Senior Credit Officer
Moody's Asia Pacific Ltd.
No Related Data.
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