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Rating Action:

Moody's affirms CK Asset's A2 ratings; outlook stable

22 Aug 2019

Hong Kong, August 22, 2019 -- Moody's Investors Service has affirmed CK Asset Holdings Limited's A2 issuer rating.

Moody's has also affirmed the following ratings, which are unconditionally and irrevocably guaranteed by CK Asset: (1) the provisional (P)A2 senior unsecured rating on CK Property Finance (MTN) Limited's medium-term note (MTN) program; and (2) the A2 senior unsecured rating on the notes issued by Radiant Access Limited and CK Property Finance (MTN) Limited.

The rating outlooks remain stable.

The rating action follows CK Asset's announcement on 19 August that the company has entered into an agreement to purchase a 100% stake in Greene King plc, an integrated brewer and pub retailer in the UK, for a cash consideration of about GBP2.7 billion (HKD25.2 billion).

"The proposed acquisition will weaken CK Asset's business and financial profile, but the impact will be manageable given CK Asset's ample financial cushion and Greene King's moderate scale relative to CK Asset," says Stephanie Lau, a Moody's Vice President and Senior Analyst.

Moody's regards Greene King's business profile as less stable than CK Asset's core property and utility businesses, given the challenging operating environment facing pub operators in the UK, uncertain economic conditions and currency volatility.

However, this concern is mitigated by Greene King's long operating history, its position as one of the leading players in this industry, ownership of physical assets and stable operating cash flow. In addition, Moody's estimates Greene King accounted for only about 10% and 15% of CK Asset's assets and EBITDA (after joint venture adjustments) for the 12 months ended June 2019.

If the acquisition is completed as planned, Moody's expects CK Asset's debt leverage -- as measured by net debt/net total capitalization and including the consolidation of Greene King's lease-adjusted debt on a pro forma basis -- will rise to about 16% in 2019 from 10% for the 12 months ended June 2019. However, this rise in leverage will reflect primarily the cash outflow to fund the acquisition in 2019 and Green King's higher debt leverage.

As such, debt leverage should recover to around 11% in 2020, as robust cash flow from property sales will reduce its net debt levels, barring any further acquisitions.

Similarly, CK Asset's recurring EBIT/interest will weaken to around 5.5x in 2019 from 6.3x for the 12 months ended June 2019, before recovering to around 6.0x-6.5x in 2020.

Such credit metrics solidly position CK Asset at the A2 rating level.

The transaction is subject to approval from CK Asset and Greene King's independent shareholders, as well as approvals and clearances from the London Stock Exchange, the UK Panel on Takeovers and Mergers, and other regulators.

CK Asset's A2 issuer rating continues to reflect its established market position in property development in Hong Kong and China, and the diversified recurring income it derives from its portfolio of mature and stable assets, including investment properties. The rating also considers its low debt leverage, good financial flexibility and excellent liquidity profile.

CK Asset's property development business accounted for about 55% of adjusted EBIT in 2018, which increases volatility in revenue and earnings because of the lumpiness of development property revenue recognition.

However, this volatility is mitigated by (1) the company's leading market position and low-cost land bank; (2) its stable cash flow from its property rentals; and (3) its growing recurring income from quality non-property assets, such as its aircraft leasing, utilities and energy businesses, which are located in well-regulated developed markets.

CK Asset's more acquisitive strategy since 2016 has increased event and execution risks, especially as the company enters into new industries where it lacks an operational track record. However, these risks are mitigated by CK Asset's high financial flexibility and its demonstrated financial prudence. The company also has a track record of monetizing assets at strong valuations, which helps to fund cash usage and lower debt.

In terms of environmental, social and governance (ESG) factors, the rating considers CK Asset's growing appetite for acquisitions and its concentrated ownership. These factors are balanced by the company's prudent financial policy and maintenance of a healthy financial profile over the years.

The stable rating outlook reflects Moody's expectation that CK Asset will maintain its prudent approach to financial management, stable income from quality assets, and strong liquidity.

Upward rating pressure could emerge if CK Asset (1) increases its stable income streams and its coverage ratio on interest expenses; (2) increases its geographic diversification to reduce its high reliance on the Chinese property market, where competition is strong and regulatory risk is high; and (3) maintains its strong financial profile.

Downward rating pressure could emerge if (1) the company becomes less prudent in its financial management, weakening its liquidity position or raising its debt leverage, with adjusted net debt/net total capitalization exceeding 20%; (2) its non-property development EBIT/interest falls below 3.0x-3.5x; or (3) it invests in substantial non-property investments that carry high risk, thereby raising business and financial risks.

The principal methodology used in these ratings was Homebuilding And Property Development Industry published in January 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CK Asset Holdings Limited has a leading market position and long track record in property development and investment in Hong Kong and mainland China. CKA Asset develops, invests and manages properties across various asset classes, including residential, office, retail, industrial, car park and hotel properties.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entities are participating and the rated entities or their agent(s) generally provide Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

The first name below is the lead rating analyst for this Credit Rating and the last name below is the person primarily responsible for approving this Credit Rating.

Stephanie Lau
Vice President - Senior Analyst
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
Client Service: 852 3551 3077

Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 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
Client Service: 852 3551 3077

No Related Data.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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​

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