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Rating Action:

Moody's affirms China Merchants Port's Baa1 ratings; Revises outlook to stable from negative

 The document has been translated in other languages

13 Jul 2018

Hong Kong, July 13, 2018 -- Moody's Investors Service has affirmed China Merchants Port Holdings Company Limited's (CMPH) Baa1 issuer rating and the backed senior unsecured ratings of China Merchants Finance Company Limited.

The ratings outlook has been changed to stable from negative.

RATINGS RATIONALE

"The change in CMPH's ratings outlook to stable from negative reflects (1) an additional one-notch support from CMPH's parent, offset by (2) a weakening in its standalone credit profile due to the company's acquisitive appetite," says Ralph Ng, a Moody's Assistant Vice President and Analyst.

CMPH has undertaken several major acquisitions and commenced large greenfield projects, including its investments in Hambantota port in Sri Lanka (HKD8.7 billion), Shantou Port Group (HKD6.1 billion), TCP in Brazil (HKD7.2 billion), and the port of Newcastle in Australia (HKD3.8 billion).

"Continuous expansion has raised CMPH's financial leverage which we expect to remain high as the company pursues capacity expansion opportunities, consistent with its strategy," adds Ng.

The additional one notch in support uplift reflects CMPH's increasing strategic importance, which is underpinned by its ownership of key and high profile port assets overseas, and which are important to the national "Belt & Road" strategies. Furthermore, Moody's expects such a strategy to continue, and this will increase the company's role as a key growth platform supporting the group's as well as China's strategic priorities.

Moody's expects the port operator's adjusted funds from operations(FFO)/debt ratio, after pro-rata consolidating its joint-ventures and associates (JV/Assoc), will be about 10%-11% during 2018-2020, a level which is consistent with a Baa1 issuer rating and its standalone credit profile.

As mentioned above, Moody's believes CMPH will continue to expand its footprint overseas, driven by its long-term growth business strategies as well as aligning the national "Belt and Road" initiatives.

Moody's recognizes the strategic nature of such acquisitions and the diversification they add to the group when fully operational. That said, they entail execution challenges, particularly that they may be in less developed countries in which the regulatory environment is still evolving.

CMPH's Baa1 issuer rating reflects its standalone credit profile and a three-notch uplift based on Moody's expectation that the company will continue to receive a high likelihood of support, which the company will receive from China Merchants Group Limited (CMG), when in need, given its growing importance as CMG's core platform for investing, developing and operating the port business.

The stable rating outlook reflects Moody's expectation that CMPH's standalone credit profile as well as the willingness and ability of CMG to provide support remain stable.

Moody's sees limited rating upgrade potential, given the company's expansive growth strategy, and Moody's expectation that CMPH's financial leverage will remain elevated at the current rating level. However, the rating could be upgraded over time if (1) the company improves its standalone credit profile significantly and (2) the regulatory framework for the port industry improves substantially.

Financial indicators for a possible upgrade include adjusted FFO/debt with pro-rata consolidation of JV/Assoc exceeding 12% and/or adjusted FFO interest cover with pro-rata consolidation of JV/Assoc deteriorating above 4.0x on a sustained basis.

Downward rating pressure could emerge if (1) there is a substantial further deterioration in CMPH's profitability or its adjusted debt position, (2) CMPH engages in further material debt-funded acquisitions, and (3) there is a material increase in dividend payments to the shareholders.

Financial indicators for a possible downgrade include adjusted FFO/debt with pro-rata consolidation of JV/Assoc falling below 8%, or adjusted FFO interest cover with pro-rata consolidation of JV/Assoc declining below 2.0x on a sustained basis.

Moody's could also downgrade the rating without a decline in the company's standalone credit profile if Moody's assessment of the probability of support from the parent is lowered. This can result from a deterioration in CMG's credit profile, or if its ownership in CMPH declines substantially.

The principal methodology used in these ratings was Privately Managed Port Companies published in September 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

China Merchants Port Holdings Company Limited, listed on the Hong Kong Stock Exchange, has port investments in Australia (Aaa stable), Brazil (Ba2 stable), China (A1 stable), Sri Lanka (B1 negative), Togo, Djibouti, Nigeria (B2 stable) and Turkey (Ba2 review for downgrade), and a 49% stake in Terminal Link SAS.

At 30 June 2018, CMPH was around 62% controlled indirectly by China Merchants Group Limited, a conglomerate wholly owned by the State-owned Assets Supervision and Administration Commission of the State Council of China.

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.

Ralph Ng
Asst Vice President - 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
Client Service: 852 3551 3077

Terry Fanous
MD-Public Proj & Infstr Fin
Project & Infrastructure Finance
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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