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Rating Action:

Moody's assigns A2 rating to CK Asset's guaranteed senior perpetual securities

08 Dec 2020

Hong Kong, December 08, 2020 -- Moody's Investors Service has assigned an A2 rating to the proposed senior unsecured perpetual securities to be issued by Panther Ventures Limited and irrevocably and unconditionally guaranteed by CK Asset Holdings Limited (CKA) (A2 stable).

The outlook is stable.

The proceeds from the securities will be used for the general corporate purposes of CKA and its subsidiaries.

RATINGS RATIONALE

"The A2 rating primarily reflects CKA's established market position in Hong Kong and mainland China, which mitigates development risks and volatility associated with development revenue recognition. The A2 rating also reflects the stable and diversified recurring income stream from its investment properties and from its portfolio of mature assets, comprising aircraft leasing, utilities and power in developed markets," says Stephanie Lau, a Moody's Vice President and Senior Analyst.

The rating also recognizes the company's prudent financial management, which mitigates the event and execution risks associated with its opportunistic acquisitions outside the property business.

Moody's expects CKA's adjusted net debt/net total capitalization to improve to around 12% in the next 12-18 months from 14.3% as of 30 June 2020. This improvement will be driven by lower net debt, without any further acquisitions. This level of leverage supports its A2 rating and provides a sufficient buffer against potential acquisitions or external shocks.

Moody's expects CKA's adjusted net debt, after the pro-rata consolidation of joint ventures, will decline to around HKD55 billion-HKD60 billion in the next 12-18 months from HKD70 billion as of June 2020, as the company's weaker but still-sizable recurring cash flow will allow it to generate positive free cash flow.

On the other hand, CKA's earnings will rebound moderately in 2021 after weakening significantly in 2020, mainly because the impact of the coronavirus-led disruptions and economic downturn on the property rental, hotel, aircraft leasing businesses and pub operations in the UK will ease.

The A2 rating on the proposed senior perpetual securities also reflects the fact that the securities will rank pari passu with all other present and future unsubordinated and unsecured obligations of the issuer and guarantor.

While the proposed guaranteed perpetual securities have hybrid-like features, with the option of deferred coupons on a cumulative and compounding basis, Moody's considers them as 100% debt-like securities as they have a dividend suspension clause that creates an incentive for the company to service the coupon. Moody's has therefore not notched down the rating.

However, Moody's could lower the rating on the securities — relative to CKA's issuer rating — if debt with deferral features becomes a substantial portion of its capital structure, or if Moody's believes that the company will likely defer many payments in advance of a default.

In terms of environmental, social and governance (ESG) considerations, CKA's ratings take into consideration the company's growing appetite for acquisitions and its ownership concentration in the Li family. These factors are balanced by the company's prudent financial policy and maintenance of a healthy financial profile over the years.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The stable outlook reflects Moody's expectation that CKA will maintain its prudent approach to financial management, stable income from its investment properties and hotels, and strong liquidity.

Moody's could upgrade the ratings if the company (1) increases its stable income streams and its coverage ratio on interest expenses; (2) increases its geographic diversification to reduce its high reliance on the Chinese property market, where competition is strong and regulatory risk is high; and (3) maintains a strong liquidity profile.

On the other hand, Moody's could downgrade the ratings if (1) CKA becomes less prudent in its financial management, thereby weakening its liquidity position or raising its debt leverage, with adjusted net debt/net total capitalization exceeding 20%; (2) its non-property development EBIT/interest falls below 3.0x-3.5x; or (3) it invests in substantial non-property investments that carry high risks, thereby raising business and financial risks.

The principal methodology used in this rating was Homebuilding And Property Development Industry published in January 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1108031. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CK Asset Holdings Limited has a leading market position and a long track record in property development and investment in Hong Kong and mainland China. CKA develops, invests and manages properties across various asset classes, including residential, office, retail, industrial, car park and hotel properties.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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 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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Moody's considers a rated entity or its agent(s) to be participating when it maintains an overall relationship with Moody's. Unless noted in the Regulatory Disclosures as a Non-Participating Entity, the rated entity is participating and the rated entity or its agent(s) generally provides Moody's with information for the purposes of its ratings process. Please refer to www.moodys.com for the Regulatory Disclosures for each credit rating action under the ratings tab on the issuer/entity page and for details of Moody's Policy for Designating Non-Participating Rated Entities.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

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.
© 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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