Hong Kong, February 24, 2020 -- Moody's Investors Service has affirmed Hongkong Land Holdings Limited's
(Hongkong Land) A3 issuer rating and the A2 issuer rating of Hongkong
Land's wholly owned subsidiary, The Hongkong Land Company,
Limited (HKLC).
At the same time, Moody's has affirmed the following ratings,
which are unconditionally and irrevocably guaranteed by HKLC: (1)
the provisional (P)A2 senior unsecured ratings on the medium-term
note (MTN) programs for Hongkong Land Finance (C.I) Company Limited,
Hongkong Land Treasury Serv. (Sing) Pte. Ltd. and
The Hongkong Land Notes Company Limited; and (2) the A2 ratings on
the senior unsecured notes pursuant to the MTN programs.
The rating outlooks remain stable.
RATINGS RATIONALE
The rating actions follow Hongkong Land's announcement on 20 February
2020 that it had acquired a mixed-use site on the West Bund of
Shanghai from the Shanghai Government via auction for a consideration
of RMB31.05 billion (approximately USD4.4 billion).
The land site will be used primarily for Grade-A office,
retail, residential and hotel purposes. The land cost will
be paid in instalments during 2020, developed in multiple phases,
and should complete by 2027. Moody estimates that the combined
land and construction costs will total around USD8.0 billion,
representing around 17.4% of the company's reported assets
of USD46.0 billion as of 30 June 2019.
"This large-scale investment will significantly weaken Hongkong
Land's financial metrics," says Stephanie Lau, a Moody's
Vice President and Senior Analyst. "Nevertheless, the
negative impact can be absorbed by the company's ample financial
buffer and ability to pre-sell part of the project."
"While the development of the greenfield project raises execution
risk, this risk is mitigated by Hongkong Land's track record
of executing large-scale commercial projects in mainland China,
and the prime location of the project," adds Lau.
Moody's expects that the land acquisition will increase Hongkong Land's
adjusted net debt/EBITDA to around 5.6x over the next 1-2
years from 3.1x for the 12 months to 30 June 2019, while
adjusted EBITDA/interest will weaken to 4.0x-5.0x
from 6.4x over the same period. Such projections underline
a scenario where the company retains full ownership of the project.
These forecasted ratios remain appropriate for an A3 rating level,
although they leave limited headroom against the downgrade thresholds.
The projected credit metrics also reflect conservative rental assumptions
for the company's Hong Kong Central portfolio in 2020, given
the impact of the coronavirus outbreak and the lingering effects from
the ongoing protests in the territory.
In addition, the ratings affirmation incorporates considerations
on the strategic location of the project that allows the company to (1)
invite strategic partner(s), which will significantly alleviate
the impact on its financial metrics; and (2) generate strong rental
income once completed.
Moody's also considers its track record of joint ventures with other
reputable Chinese companies in affirming the ratings and prudent financial
management over the years.
Moody's expects the company to start pre-sales for 22%
of the project's gross floor area from 2022, and the sales
proceeds will cover a significant portion of the project's construction
costs.
Moody's estimates that Hongkong Land's cash balance,
committed facilities and annual operating cash flow of around USD800-USD900
million, is sufficient to cover the full land acquisition payment,
as well as outstanding committed capex for 2020, and dividend payment
and maturing debt in the same year.
Hongkong Land's A3 issuer rating continues to reflect the company's
(1) strong franchise; (2) long operating history; and (3) quality
investment properties with high occupancy rates in prime Asian locations,
which ensure stable rental income through the economic cycles.
These strengths are partly tempered by the company's geographic concentration
in Hong Kong and the high business risk for its residential development
activities.
Hongkong Land's A3 rating is one notch below the A2 rating of its major
operating subsidiary, HKLC, reflecting the risk of structural
subordination stemming from Hongkong Land's holding company status.
In terms of environmental, social and governance (ESG) factors,
the ratings factor in Hongkong Land's ownership concentration in
Jardine Strategic Holdings Limited. This factor is balanced by
(1) Hongkong Land's maintenance of a healthy financial profile through
the economic cycles; and (2) the fact that Hongkong Land's
board is represented mainly by non-executive directors and independent
non-executive directors.
The stable outlook reflects Moody's expectation that the company will
manage its expansion strategy prudently and take measures to improve debt
leverage if necessary.
Upward ratings pressure could emerge, if earnings and diversification
from Hongkong Land's investment property business increase meaningfully,
and the company's financial leverage improves. The improvement
in financial leverage would have to be evidenced by (1) underlying profit
from commercial properties covering 6.5x-7.0x or
more of its gross interest on a sustained basis, and (2) adjusted
net debt/EBITDA staying below 3.0x on a sustained basis.
Downward rating pressure could emerge, if Hongkong Land engages
in additional material debt-funded investments, which could
impair the group's financial profile, such that adjusted net debt/EBITDA
exceeds 6.0x or adjusted EBITDA/interest falls below 5.0x,
both on a sustained basis.
The principal methodology used in these ratings was REITs and Other Commercial
Real Estate Firms published in September 2018. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Established in 1889 and listed in London, Singapore and Bermuda,
Hongkong Land Holdings Limited is a leading Asian property investment,
management and development group. The Group owns and manages more
than 850,000 sqm of prime office and luxury retail property in key
Asian cities, principally in Hong Kong, Singapore, Beijing
and Jakarta. Hongkong Land is 50% owned by the major conglomerate,
Jardine Strategic Holdings Limited (A1 stable).
The Hongkong Land Company, Limited (HKLC), incorporated in
Hong Kong, is a wholly owned subsidiary of Hongkong Land,
and a private company. HKLC is the key subsidiary of Hongkong Land;
directly holding the group's Hong Kong investment property portfolio
assets.
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
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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.
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Regulatory disclosures contained in this press release apply to the credit
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Please see www.moodys.com for any updates on changes to
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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
