Hong Kong, May 29, 2020 -- Moody's Investors Service has affirmed the Baa1 issuer rating of China
Merchants Port Holdings Company Limited (CMPH).
At the same time, Moody's has affirmed the Baa1 backed senior unsecured
rating of CMHI Finance (BVI) Co., Ltd, and the Baa1
backed senior unsecured rating of China Merchants Finance Company Limited.
These entities are both wholly-owned subsidiaries of CMPH.
The outlook on all ratings remains stable.
RATINGS RATIONALE
"The rating affirmations reflect our view that CMPH's credit metrics
will be broadly in line with its current Baa1 ratings, despite a
weakening in container throughput stemming from coronavirus disruptions,"
says Ralph Ng, a Moody's Assistant Vice President and Analyst.
CMPH's Baa1 issuer rating incorporates its standalone credit profile and
a three-notch uplift reflecting Moody's expectation that CMPH will
continue to receive support from China Merchants Group Limited (CMG) in
times of need. This expectation is underpinned by its strategic
importance as CMG's core platform for investing in, as well as developing
and operating port businesses, especially in overseas markets.
CMPH's standalone credit profile is constrained by the company's (1) high
leverage because of its acquisitive appetite; and (2) limited control
over some of its port joint ventures and associates, which have
collectively become an important source of cash flow.
The stable rating outlook reflects Moody's expectation that (1)
CMPH's standalone credit profile as well as CMG's willingness and ability
to provide support will remain stable; and (2) CMPH will not engage
in heavily debt-funded acquisitions that materially hurt its credit
profile.
The rapid and widening spread globally of the coronavirus outbreak,
deteriorating Chinese and global economic outlooks, falling oil
prices, and asset price declines are creating a severe and extensive
credit shock across many sectors, regions and markets. The
combined credit effects of these developments are unprecedented.
The Chinese port sector is affected by the shock given its sensitivity
to consumer demand and sentiment.
Moody's expects CMPH's container throughput to decline by
about 5%-10% in 2020 due to supply chain disruptions
and the weakening global economy brought on by the coronavirus outbreak,
before recovering moderately by about 5% in 2021.
Based on these revised assumptions, CMPH's leverage --
as measured by funds from operations (FFO)/debt ratio after pro-rata
consolidating its joint ventures and associates -- will drop to between
7.4%-7.7% over 2020-2022 from
previously about 9% over the same period. This level of
leverage remains broadly appropriate for the company's Baa1 issuer
rating. That said, the exact level of CMPH's credit
metrics will largely depend on any unexpected material acquisitions that
CMPH may undertake in pursuit of its acquisitive strategy.
"CMPH's planned asset disposals, if completed as planned,
will help reduce debt and lower its need of debt funding for capital spending,"
adds Ng.
CMPH is looking to dispose of and monetize its partial ownership of certain
port assets for future capital spending. These disposals,
if successful, will generate additional funding for its near-term
capital spending and debt reduction.
CMPH disposed of its 22.55% shares in TCP and land parcels
in Qianhai in 2019, with the over HKD8 billion in proceeds used
for capital spending. Moody's expects CMPH to continue to
dispose of its shares in certain port assets over the next 12 to 18 months.
Moody's expects that most of the proceeds from asset disposals will
be used to repay CMPH's bridge loan (about USD1 billion).
The bridge loan was used to fund its announced acquisition of 10 terminals,
which are currently owned by CMA CGM S.A (B2 review for downgrade),
through Terminal Link, a joint venture between CMPH and CMA.
That said, Moody's has not included any disposal proceeds
in its base case because there are as yet no contractual agreements for
the proposed disposals.
Moody's regards the coronavirus outbreak as a social risk under its ESG
framework, given the substantial implications for public health
and safety.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade of the ratings is unlikely, 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 ratings 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.
Credit metrics indicative of a possible upgrade include adjusted FFO/debt
with pro rata consolidation of joint ventures/associates exceeding 12%,
and/or adjusted FFO/interest cover with pro rata consolidation of its
share in joint ventures and associates rising above 4.0x,
both on a sustained basis.
Downward rating pressure could emerge if (1) there is a substantial deterioration
in CMPH's profitability or adjusted debt position, (2) CMPH engages
in further material debt-funded acquisitions, (3) the cash
flow from non-investment grade countries account for over 50%
of the credit profile after pro-rata consolidation; and/or
(4) there is a material increase in dividend payments to the shareholders.
Credit metrics indicative of a possible downgrade include adjusted FFO/debt
with pro rata consolidation of its share in joint ventures and associates
falling below 7%, or adjusted pro rata consolidated FFO/interest
cover declining below 2.0x, both on a sustained basis.
Moody's could also downgrade the ratings without a decline in the
company's standalone credit profile if Moody's believes that
the likelihood of support from the parent has declined. 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 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1040210.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
China Merchants Port Holdings Company Limited (CMPH), listed on
the Hong Kong Stock Exchange, has port investments in Australia
(Aaa stable), Brazil (Ba2 stable), China (A1 stable),
Sri Lanka (B2 RUR-D), Togo (B3 stable), Djibouti,
Nigeria (B2 negative) and Turkey (B1 negative), along with a 49%
stake in Terminal Link SAS.
As of 31 December 2019, CMPH was 62.85% indirectly
controlled by China Merchants Group Limited (CMG), a conglomerate
wholly owned by the State-Owned Assets Supervision and Administration
Commission of the State Council of China.
REGULATORY DISCLOSURES
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sensitivity analysis, see the sections Methodology Assumptions and
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Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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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
