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Announcement:

Moody's affirms Swire Pacific's ratings upon sale of Festival Walk

29 Jul 2011

Approximately USD2.2 billion in debt securities affected

Hong Kong, July 29, 2011 -- Moody's Investors Service has today affirmed the A3 issuer rating of Swire Pacific Ltd (Swire) and the senior unsecured bond ratings of its financing subsidiaries, Swire Pacific MTN Financing Ltd and Swire Pacific Offshore Financing Ltd.

At the same time, Moody's has affirmed the Baa1 subordinated debt ratings of Swire Pacific Capital Ltd.

This affirmation follows the announcement of Swire to sell its full stake in Festival Walk to Mapletree Investments Pte Ltd for a cash consideration of about HKD18.8 billion. The proceeds will go towards the general working capital requirements of Swire, including its investments in China.

In Moody's view, this transaction will strengthen Swire's financial profile in the near term. The loss in recurring rental income from Festival Walk, which is manageable relative to Swire's annual operating cash flow, will be more than offset by the cash proceeds.

The proceeds will also provide additional funding to allow Swire to execute its investment plan without straining its financial position. In particular, its property investments are typically capital intensive with long pay back periods.

Swire's credit metrics as of December 2010 were modest for its A3 rating. It reported funds from operations (FFO)/debt of 16.3% or FFO/net debt of 17.6%. This transaction will improve pro-forma FFO/net debt to the mid-20% range and better positioned it in its rating category.

Festival Walk is a mixed-used commercial complex located at Kowloon Tong in Hong Kong. It is one of Swire's three key investment properties in Hong Kong, albeit the smallest of them. Swire developed this property with an initial stake of 50% and acquired the remaining 50% from CITIC Pacific (Ba1/stable) in 2006 for HKD6.2bn.

This sale, subject to certain conditions, is expected to result in a net gain of about HKD1.7 bn.

The outlook on all ratings is stable, incorporating the expectation that Swire's business portfolio will remain stable and that cash flow from rental income will remain strong. The outlook also reflects the financial prudence of Swire's management and the company's track record thus far. As such, Moody's expects its credit profile to remain consistent with the current rating.

A rating upgrade is unlikely, given Swire's credit ratios and its expansion plans. Over the medium term, however, upward rating pressure could emerge if 1) there are no material changes to Swire's business portfolio or its business strategy, such that its investment properties remain key profit and cash flow contributors; 2) its liquidity remains strong; and 3) its FFO/debt surpasses 30%-35% and FFO interest coverage exceeds 5x-6x.

Negative rating pressure could arise if Swire engages in aggressive capital investments, or if the Hong Kong property market deteriorates significantly, weakening the company's credit metrics, such that FFO/debt falls below 15%-20% and FFO interest coverage drops below 3x-3.5x.

Downward rating pressure may also emerge if 1) Swire's business mix changes, such that its recurring property revenue streams fall below 40%-50% of consolidated EBIT; 2) its risk exposure to Chinese property projects increases substantially; or 3) it has to provide funding support to Cathay.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

Swire's ratings were assigned by evaluating factors that Moody's believes are relevant to the credit profile of the issuer, including the company's 1) business risk and competitive position in comparison with peers; 2) capital structure and financial risk; 3) projected performance over the near to medium term; and 4) track record and tolerance for risk.

These attributes were compared to those of other issuers both in and outside Swire's core industries; Moody's thus considers Swire's ratings as comparable to those of other issuers of similar credit risk.

Swire Pacific Ltd is engaged in the property investment, property development, aviation, beverages, marine services, and trading and industrial businesses. Listed on the Hong Kong Stock Exchange, it is controlled by a UK-based private company, John Swire & Sons Ltd, which held 40.63% of its issued capital and 57.62% of its voting rights as at 31st December 2010.

Hong Kong
Elizabeth Allen
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

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

Moody's affirms Swire Pacific's ratings upon sale of Festival Walk
No Related Data.
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