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16 Apr 2004
MOODY'S ASSIGNS A2 RATING TO THE PROPOSED 10-YEAR EUROBONDS ISSUE GUARANTEED BY HONGKONG LAND CO. LTD, OUTLOOK STABLE
Hong Kong, April 16, 2004 -- Moody's Investors Service has assigned an A2 debt rating to the proposed
senior unsecured 10-year Eurobonds issued by the Hongkong Land
Finance (Cayman Islands) Co. Ltd., based on the irrevocable
and unconditional guarantee of Hongkong Land Co., Ltd.
(HKLC). The bonds' proceeds will primarily be used for general
corporate purpose. The rating outlook is stable.
The rating reflects HKLC's relatively stable cash flow generated from
its high quality and resilient commercial property portfolio, and
its leadership position in the high-end property sector in Hong
Kong with good quality tenants. This has in the past translated
into premium pricing for HKLC's office properties, which generates
about 76% of HKLC's gross rental income. Majority
of its portfolio is located in the heart of the Central Business District
in Hong Kong. The buildings are conveniently located with extensive
transport links and are generally well maintained. Moody's believes
that the prime location, HKLC's good property management and its
dominant position enable it to effectively protect its strong franchise
in Central Business District and maintain its competitiveness.
At the same time, the rating recognizes the geographic and tenant
concentration of HKLC's property portfolio, and its high dividend
payout policy, hence the resultant slow capital formation.
The stable outlook reflects the fact that the stabilization of the Hong
Kong office sector -- due to the ongoing local and global macro-economic
upturn -- has alleviated the agency's concerns over further
material deteriorations in the Territory's rental and property prices.
These developments have, in turn, eased the potential pressures
expected on the cash flows and financial profiles of the HongKong Land
Group. Office space take-up has improved and rental rates
have been firming since the start of 2004. Moody's believes
that the lower level of new supply expected in the coming 2 years and
the business opportunities arising from the Closer Economic Partnership
Arrangement (CEPA) between the HK SAR and PRC governments will provide
support for office demand.
At the same time, the upturn in the retail rental market is being
supported by consecutive periods of rising retail sales, fuelled
in turn by the resurgence in local consumer spending and continued growth
in inbound tourism. Given that new retail space supply is low,
Moody's expects the current rental trend to prove sustainable,
unless any unexpected events emerge. Retail rental income contributed
to about 23% of HongKong Land's total rental income in FY2003.
Moody's, however, does not expect the Group's
financial matrices to strengthen significantly as the rating agency does
not anticipate the office sector's negative rental reversion to
reverse until 2005, when the renewal of high cost leases concluded
in 2000/2001 will be complete.
Given that the impact of negative rental reversion is not expected to
disperse before 2005, it is unlikely that HongKong Land's
ratings would be upgraded in the next two years. However,
upward rating pressure could evolve, beyond that period, if
the Group manages to diversify its income stream, possibly through
increasing the retail rental contribution or through successful investments
beyond the Territory.
On the other hand, the Group's financial profile is modest
for its rating level. The rating reflects Moody's expectation
that the Group's financial matrices will stabilize and then improve in
the next two years and that it will continue to manage its redevelopment
initiatives and reposition its asset portfolio with financial prudence.
Furthermore, it will exercise flexibility -- as circumstances
require -- in its dividend pay-out policy. Moody's
says rating pressure could evolve if Group's leverage were to increase
beyond 50% and its Gross Cash Flow/Gross Interest fell below 2x.
HKLC, incorporated in Hong Kong, is the wholly-owned
subsidiary of Hongkong Land Holdings Ltd. (HKLH), which is
a Bermuda-incorporated holding company, engaged in property
investment, management and development. HKLC holds the group's
5 million sq. ft. prime office and retail space in Hong
Kong. HKLH is 42% owned by Jardine Strategic, which
in turn is 79% owned by the Bermuda based conglomerate, Jardine
Matheson.
Sydney
Brian Cahill
Managing Director
Corporate Finance Group
Moody's Investors Service Pty Ltd
612 9270 8100
Hong Kong
Clara Lau
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
Telephone: 852-2509-0200
Facsimile: 852-2509-0165
No Related Data.
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