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Rating Action:

Moody's affirms Cheung Kong Property's A2 ratings; outlook stable

11 Apr 2017

Hong Kong, April 11, 2017 -- Moody's Investors Service has affirmed Cheung Kong Property Holdings Limited's (CKP) A2 issuer rating, as well as the senior unsecured rating and provisional (P)A2 senior unsecured rating on the guaranteed medium term note (MTN) program of CK Property Finance (MTN) Limited, a wholly-owned subsidiary of CKP.

The ratings outlook is stable.

The ratings affirmation follows CKP's announcement on 31 March 2017 that it has entered into an agreement to acquire all the issued and outstanding common shares of Reliance Intermediate Holdings LP (Ba2 review for upgrade), through 3216444 Nova Scotia Company (unrated) — an intermediate holding company — for approximately HKD16.44 billion.

The transaction is subject to the fulfillment of a number of conditions, including obtaining customary approvals under the Investment Canada Act and the Competition Act.

RATINGS RATIONALE

"The affirmation of CKP's A2 issuer rating reflects our expectation that CKP will be prudent in its non-property investments, maintain property development and investment as its core businesses, and adopt prudent financial management to keep debt leverage at low levels," says Franco Leung, a Moody's Vice President and Senior Credit Officer.

CKP has taken on three non-property businesses since December 2016. Please refer to Moody's press releases of 6 December 2016 and 17 January 2017 on the previous two investments. The investments in DUET Group (unrated) and Reliance Intermediate Holdings LP are subject to approvals from the relevant authorities.

Moody's views CKP as a property company with a solid track record in Hong Kong (Aa1 negative) and China (Aa3 negative).

The company's three non-property investments are not very significant in terms of their total assets and revenues. The three investments amount to around HKD39.7 billion, or about 10% of CKP's total assets at end-2016, and their pro forma revenues in 2016 — assuming that they were acquired — represented 11% of CKP's total pro forma revenues in the same year.

Moody's believes that CKP will benefit from additional streams of relatively stable non-property revenues, if the acquisitions of DUET and Reliance are completed as planned, because this situation will improve CKP's business risk and is positive for the company's issuer rating.

On the other hand, the investments will consume CKP's cash and increase its debt levels as the acquired entities' debt is consolidated or adjusted.

At end-2016, CKP's reported sizable cash on hand of HKD62.6 billion was sufficient to settle the acquisitions of DUET and Reliance for a total HKD34 billion.

Moody's estimates that CKP's debt leverage — as measured by net debt/net total capitalization — could temporarily exceed the rating threshold in 2017, if the acquisitions of DUET and Reliance are completed in 2017. Such estimates have not considered the possibility that CKP could sell up to 25% of its stake in Reliance to Cheung Kong Infrastructure Holdings Limited (unrated).

But Moody's expects that CKP will likely consider the impact on its debt leverage of any future investments over the next 12-18 months.

CKP's A2 issuer rating reflects the strong recurring income from its investment properties, its strong market position in Hong Kong's property development market, the diversified character of its property operations, its good access to the bank and capital markets, and its prudent approach to financial management.

The A2 rating also reflects the diversified state of the company's property operations, which includes property development, property investment, and owning and operating hotels and serviced apartments.

The stable ratings outlook reflects Moody's expectation that CKP will maintain its prudent approach to financial management, stable income from its investment properties and hotels, and strong liquidity position.

Upward pressure on CKP's issuer rating could emerge if CKP: (1) increases the scale of its stable income streams and its coverage ratio on interest expenses; and (2) increases its geographic diversification to reduce its high reliance on the China property market, where competition is strong and regulatory risk is high.

Downward rating pressure could emerge if the company: (1) changes its prudent financial management, thereby weakening its strong liquidity position or low debt leverage position, for example, with adjusted net debt/net total capitalization exceeding 15%; (2) disposes of investment properties and/or hotels, such that non-property development EBIT/interest falls below 3.0x-3.5x; or (3) undertakes substantial non-property investments that increase its business and financial risks.

The principal methodology used in these ratings 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.

Reliance Intermediate Holdings LP is principally engaged in the building equipment services sector providing water heaters, HVAC (heating, ventilation and air conditioning) equipment, comfort protection plans and other services to homeowners primarily in Ontario, Canada, under the consumer brand, "Reliance Home Comfort".

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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.

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.

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.
© 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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