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Rating Action:

Moody's assigns A2 to Cheung Kong Property's proposed perpetual securities

11 May 2017

Hong Kong, May 11, 2017 -- Moody's Investors Service has assigned an A2 rating to the proposed senior perpetual securities to be issued by Radiant Access Limited, a wholly owned subsidiary of Cheung Kong Property Holdings Limited (CKP, A2 stable).

The perpetual securities will be unconditionally and irrevocably guaranteed by CKP.

The rating outlook is stable.

The proceeds from the securities will be used for general corporate purposes.

RATINGS RATIONALE

"The A2 rating reflects CKP's strong recurring income from its investment properties, its strong market position in Hong Kong's property development industry, the diversified character of its property operations, its good access to the bank and capital markets, and prudent approach to financial management," says Franco Leung, a Moody's Vice President and Senior Credit Officer.

The A2 rating also reflects the diversified state of the company's property operations, which includes property development, property investment, and owning and operating hotels and serviced apartments.

Moody's estimates that CKP's debt leverage — as measured by net debt/net total capitalization — could exceed the rating threshold in 2017, if its acquisition of Reliance Intermediate Holdings LP (Ba2 review for upgrade) — through 3216444 Nova Scotia Company (unrated), an intermediate holding company — is completed as planned. This view has not considered the possibility that CKP could sell up to 25% of its stake in Reliance to Cheung Kong Infrastructure Holdings Limited (unrated).

Nevertheless, Moody's expects that in 2018, CKP's debt leverage will improve to a level consistent with the A2 rating category, because CKP will likely maintain its prudent approach to financial management.

The rating on the perpetual securities also reflects: (1) the fact that the securities will rank pari passu with all other present and future unsubordinated and unsecured obligations of CKP; and (2) Moody's assessment of a low likelihood of CKP deferring the coupon over the next 12 months, given that the company is rated A2 and maintains a non-property development EBIT to interest coverage of above 4.0x.

While CKP's proposed guaranteed perpetual securities have hybrid-like features, with the option of deferred coupons on a cumulative basis, Moody's considers them as 100% debt-like securities, because the securities have a dividend suspension clause that creates an incentive for the company to service the coupon.

However, the rating on the securities could be lowered — relative to the company'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 default.

Moody's believes the proceeds from the perpetual securities will be partly used for business expansions and partly for refinancing its debt.

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

Upward pressure on CKP's issuer rating could emerge if CKP: (1) increases the scale of its stable income streams and its coverage ratio on interest expenses; and (2) increases its geographic diversification to reduce its high reliance on the China property market, where competition is strong and regulatory risk is high.

Downward rating pressure could emerge if the company: (1) changes its prudent approach to financial management, thereby weakening its strong liquidity position or low debt leverage position, for example, if it shows an adjusted net debt/net total capitalization exceeding 15%; (2) disposes of investment properties and/or hotels, such that non-property development EBIT/interest falls below 3.0x-3.5x; or (3) undertakes substantial non-property investments that increase its business and financial risks.

The principal methodology used in this rating was Homebuilding And Property Development Industry published in April 2015. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Cheung Kong Property Holdings Limited is a leading property developer in Hong Kong and listed in Hong Kong in June 2015, after the reorganization of the property businesses of Hutchison Whampoa Limited and Cheung Kong (Holdings) Limited.

Cheung Kong (Holdings) Limited listed in Hong Kong in 1972.

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.

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.

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

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.

Franco Leung
VP - Senior Credit Officer
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

Gary Lau
MD - Corporate Finance
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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