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Rating Action:

Moody's affirms IFC Development's A2 ratings; outlook stable

07 Mar 2019

Hong Kong, March 07, 2019 -- Moody's Investors Service has affirmed the A2 issuer rating of IFC Development Limited (IFC).

Moody's has also affirmed the A2 rating of IFC Development (Corporate Treasury) Limited's senior unsecured bonds, which are guaranteed by IFC.

The ratings outlook is stable.

RATINGS RATIONALE

"IFC's A2 issuer rating recognizes its well-established track record in managing a quality mixed-use commercial complex in Hong Kong, which has demonstrated strong recurring cash flow and profitability across the economic cycles," says Stephanie Lau, a Moody's Vice President and Senior Analyst. "This quality asset mitigates its single-location concentration."

Moody's expects IFC to continue to benefit from the favorable Central Grade-A office supply and demand dynamics in Hong Kong over the next 12-18 months.

"A potential slowdown in Hong Kong's overall economic and retail environment could slow IFC's earnings growth, but we expect the company's credit profile to remain largely intact, given its minimal capital spending and low leverage," adds Lau.

IFC's A2 rating also considers its prudent financial management, and close association with its parent groups, Sun Hung Kai Properties Limited (unrated), Henderson Land Development Co. Ltd (unrated) and The Hong Kong and China Gas Company Limited (A1 stable).

Moody's forecasts that IFC's financial leverage — as measured by adjusted debt/EBITDA — will stay at 3.6x-4.0x over the next 12-18 months; a level which is similar to the 3.6x recorded at 30 June 2018.

Likewise, adjusted debt/capitalization will register around 19%-20% over the next 12-18 months — a result which is similar to the 19% at 30 June 2018 — based on Moody's more conservative office and retail rental growth assumptions in 2019 and 2020.

These ratios appropriately position IFC at its A2 ratings level.

The company's total revenue grew 6.4% to HKD6.0 billion in the fiscal year ended 30 June 2018, mainly reflecting a similar growth rate in its office rental income generated from One and Two ifc. Office rental income contributed to 40% of IFC's total revenue, the largest contributor across all its business segments in fiscal 2018. Its mall rental income, which drove 31% of total revenue, grew 5% year-on-year.

Occupancy rates remained high and stable, a result of IFC's proactive lease management and strategy. For the fiscal year ended 30 June 2018, IFC's full-year average occupancy rates reached 100% for offices, 100% for retail, 89% for hotels, and 82% for suite hotels.

The stable rating outlook reflects Moody's expectation that IFC will maintain sound financial metrics, supported by recurring rental income and limited development risk.

Upward ratings pressure is unlikely over the next 12-18 months, owing to IFC's high geographic concentration. Nevertheless, Moody's could upgrade the ratings over time if IFC (1) achieves greater operating diversification; and/or (2) maintains a strong financial profile, with debt/EBITDA below 3.5x-4.0x and debt/capitalization below 20%-25%, both on a sustained basis.

Downward ratings pressure could emerge if (1) IFC's debt/EBITDA exceeds 4.5x-5.0x and debt/capitalization surpasses 30%-35%, (2) the company incurs significant debt-funded capital spending to refurbish its existing properties or decides to develop a large property, or (3) there are substantial changes in its shareholding structure that result in weakening support from its shareholders.

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.

Founded in 1996, IFC Development Limited owns and operates premium mixed-use complexes, and its properties have become some of the most important landmarks in Hong Kong. Its investment property portfolio has an attributable gross floor area of 3.63 million sq. ft., comprising offices, retail spaces, hotels and suite hotels.

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.

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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.

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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.
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