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Announcement:

Moody's: HKCG's 2013 results are in line with expectations

20 Mar 2014

Hong Kong, March 20, 2014 -- Moody's Investors Service says Hong Kong and China Gas Company Limited's ("HKCG") results for 2013 were within Moody's expectations, with no immediate impact on its A1 issuer and senior unsecured rating.

The rating outlook remains stable.

"HKCG showed a modest growth in operating performance in 2013, mainly supported by its growing utilities business in China and its stable gas business in Hong Kong," says Ivy Poon, a Moody's Analyst. "The utilities business generated good cash flow, which offset the drop in profit from the new energy business in China."

In 2013, total revenue increased by 13.3% year-on-year to HKD28.2 billion, while recurring net profit-- excluding revaluation gains on property and one-off items -- grew by 13.0% year-on-year to HKD6.7 billion.

The China utilities business achieved a 26% increase in reported EBITDA and continued to be the growth driver of HKCG's performance.

On the other hand, the Hong Kong gas business remained its cornerstone, and has provided highly stable and predictable EBITDA of around HKD4 billion every year to fund its business expansion in China.

However, the reported EBITDA of the new energy business fell by 12% because its coal trading and coal mining businesses suffered from weak demand and depressed prices.

In addition, HKCG has been able to timely pass on increased costs to non-residential users via tariff adjustments in Chinese market. Thus, the increase in upstream gas price in July 2013 has a limited impact on HKCG's profit margin.

There are 68 projects out of a total of 124 projects affected by the gas price hike, and 99% of the affected gas sale volume had undergone tariff adjustments to pass on the higher costs.

Moody's notes the central government's reform of the gas sector and that its efforts to raise prices -- as part of moves to encourage natural gas supply -- would compress the profit margins of gas operators over time.

Nevertheless, the higher proportion of non-residential users in HKCG's gas business, to a certain extent, mitigates the rising gas costs. Non-residential users represented 77% of HKCG's total gas sales volume in 2013.

Besides, Moody's notes the improvement in HKCG's leverage in 2013, turning back the rising trend of the past three years, as a result of robust business growth in China.

Its adjusted debt to EBITDA improved to 2.3x, compared to 3.4x in 2012, while adjusted debt to capitalization was stable at 34%. Interest coverage remains strong, as evidenced by EBITDA interest coverage of 8.8x in 2013.

Also, HKCG issued USD300 million in perpetual hybrid securities in early 2014. The company plans to use the proceeds and some of its surplus liquidity to pay down its debt. At end-2013, the company's cash balance was HKD10 billion.

Having said that, the utilities business in China will continue to require capital investments, but new projects, especially for the new energy business, will need some time before they can make meaningful profit contributions. The company plans to make HKD10 billion in new investments during 2014 -- 2016.

As such, Moody's expects HKCG's credit metrics to show modest improvement over time, such that adjusted funds from operations (FFO)/debt will be in the range of 25%-30%, and adjusted FFO interest coverage will be around 8.5x -- 9.0x in next 2-3 years. Such financial metrics will be consistent with the current rating level.

The principal methodology used in this rating was Regulated Electric and Gas Utilities published in December 2013. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

The Hong Kong and China Gas Company Limited, listed on Hong Kong Stock Exchange, was the first public utility in Hong Kong engaged in the production and distribution of gas, marketing of gas and appliances, and comprehensive after-sales services. It is also engaged in piped city-gas projects, upstream and midstream operations, city water projects, and new energy businesses in China.

Ivy Poon
Analyst
Project & Infrastructure Finance
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

Patrick C Mispagel
Associate Managing Director
Project & Infrastructure Finance
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

Moody's: HKCG's 2013 results are in line with expectations
No Related Data.
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