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Announcement:

Moody's: Cheung Kong Property's A2 rating unaffected by proposed acquisition of aircraft leasing business

06 Dec 2016

Hong Kong, December 06, 2016 -- Moody's Investors Service says that Cheung Kong Property Holdings Limited's (CKP, A2 stable) proposed acquisition of an aircraft leasing business has no immediate impact on its A2 issuer rating or stable rating outlook.

On 2 December, CKP announced that it had entered into an agreement with CK Hutchison Holdings Limited (CKHH, A3 stable) to acquire the full equity interest in CK Capital Limited (unrated) and Harrier Global Limited (unrated) for USD978 million (around HKD7.59 billion). Both companies are engaged in aircraft leasing.

The consideration for the CK Capital transaction will be settled partly through the assumption of a loan that CKHH currently owes to CK Capital for around USD172 million. Hence, the cash consideration of the acquisitions will be around USD806 million (around HKD6.3 billion).

The transaction is subject to the fulfillment of a number of conditions, with completion expected within two months from the date of the agreement.

"The transaction is in line with CKP's strategy to acquire quality assets with good recurring cash flow, and will only marginally increase its debt leverage to levels that remain appropriate for its A2 rating," says Franco Leung, a Moody's Vice President and Senior Credit Officer.

Moody's expects the property business will remain CKP's core focus.

Moody's expects CKP's net debt/net total capitalisation will rise to 10%-12% over the next 1-2 years from 2.6% at end-June 2016, including the debt of CK Capital that will be consolidated into CKP's balance sheet.

Moody's will continue to monitor the expansion plans and capital requirements of the aircraft leasing business, as well as the overall impact on CKP's risk profile. The transaction will likely increase CKP's capex and funding needs as the business enlarges its aircraft portfolio.

CKP will use its cash on hand to fund the acquisition consideration of around HKD6.3 billion, which represented around 12.4% of its cash holding at end-June 2016.

CKP will likely maintain its strong liquidity profile, considering the asset sale of its integrated commercial property in Shanghai announced in October 2016. According to the company, it was in a net cash position at the time of the announcement.

"We believe that growth in air travel, strong airline operating performance and the availability of low-cost funding will continue to support the global aircraft leasing sector," adds Leung, who is also the lead analyst for CKP.

The aircraft leasing business generated EBITDA of around HKD1.4 billion in 2015 for CKHH. As such, Moody's forecasts that CKP's recurring EBIT/interest will remain strong at above 4.0x-4.5x over the next 1-2 years.

In addition, CKP has had a dedicated team in place to provide management oversight for the aircraft leasing business since 2015 and the same team will remain in place.

The principal methodology used in these rating was Homebuilding And Property Development Industry published in April 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Cheung Kong Property Holdings Limited is a leading property developer in Hong Kong and listed in Hong Kong in June 2015 after the reorganization of the property businesses of Hutchison Whampoa Limited and Cheung Kong (Holdings) Limited. Cheung Kong (Holdings) Limited listed in Hong Kong in 1972.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Franco Leung
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

No Related Data.
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