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Announcement:

Moody's: Swire Pacific's 1H 2012 results weak for its rating

 The document has been translated in other languages

15 Aug 2012

Hong Kong, August 15, 2012 -- Moody's Investors Service says Swire Pacific's 1H 2012 results are weak, though its overall credit profile remains appropriate for its A3 ratings.

"In light of the difficult operating environment and uncertain economic conditions, Swire experienced slowdowns in many of its businesses, with overall financial metrics weakening from FY2011 levels," says Laura Acres, a Moody's Senior Vice President.

The company's aviation segment experienced the most challenging conditions and reported a drop in net profit to HKD68 million in 1H 2012 from HKD1.7 billion in 1H 2011. This was mainly due to Cathay Pacific (unrated), who reported an attributable loss of HKD935 million as a result of high fuel costs, pressure on passenger yields and weak air cargo demand.

"While Cathay Pacific's unfavorable performance will affect Swire Pacific's cash flow in the form of reduced upstream dividends, the group's A3 ratings have a built-in cushion to absorb this level of cash flow volatility," says Acres.

Moody's considers Cathay Pacific as an independent operation with standalone funding abilities and therefore, does not consolidate Cathay Pacific's results when assessing Swire Pacific's financial profile.

On a brighter note, Swire Properties (A2 stable), which is 82%-owned by Swire Pacific and represented about 80% of the group's operating profit excluding fair value gain as of June 2012, reported a 7% year-on-year increase in gross rental income from its office portfolio principally due to positive rental revisions at Pacific Place and Island East.

Rental income from its retail portfolio decreased 25% year-on-year, although this was due to the absence of Festival Walk which was sold in 2H 2011. Excluding Festival Walk, on a like-for-like basis, rental income increased by HKD65 million; occupancy rates at its retail malls were 100%, and turnover rents increased by 14% year-on-year. Swire Properties also reported an increase in gross rental income from China, due to first-time rental contributions from Taikoo Hui and improved performance by Sanlitun.

At June 2012, Swire Pacific had total reported debt—including perpetual securities--of about HKD53.3 billion, up significantly from 2011's HKD39.7 billion after Swire Pacific and Swire Properties had raised about USD500 million each from senior notes during 1H 2012.

As a result, the company's annualized adjusted FFO/debt at June 2012—assuming operating leases similar to 2011's levels—dropped to about 16% from 22% from FY 2011. However, Moody's believes this ratio will improve in the next 12 months as funds raised were principally for refinancing about HKD 2.0 billion in bonds falling due in 2013. Adjusted FFO interest coverage also weakened to about 4.9x from 5.5x.

Swire Pacific showed strong liquidity as of June 2012, with HKD9.2 billion in cash and cash equivalents and HKD12.5 billion in committed undrawn facilities. This will be more than sufficient to cover HKD15.9 billion in debt due within the next 12-month period.

Swire Pacific Ltd is engaged in the property investment, property development, aviation, beverages, marine services, and trading and industrial businesses. Listed on the Hong Kong Stock Exchange, it is controlled by a UK-based private company, John Swire & Sons Ltd.

Laura Acres
Senior Vice President
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

Moody's: Swire Pacific's 1H 2012 results weak for its rating
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