Hong Kong, September 26, 2019 -- Moody's Investors Service ("Moody's") has assigned a Baa1 rating to the
proposed senior unsecured EUR and GBP notes to be issued by CK Hutchison
Group Telecom Finance S.A. The notes will be irrevocably
and unconditionally guaranteed by CK Hutchison Group Telecom Holdings
Limited (CK Hutchison Group Telecom, Baa1 stable).
The rating outlook is stable.
CK Hutchison Group Telecom will use the proceeds from the notes for refinancing,
and general corporate purposes, including capital expenditures.
RATINGS RATIONALE
The Baa1 rating incorporates CK Hutchison Group Telecom's underlying credit
strength and a two-notch uplift, based on the likelihood
that the company will receive support from its parent, CK Hutchison
Holdings Limited (CKHH, A2 stable), in times of need.
"CK Hutchison Group Telecom's underlying credit strength is supported
by its long and established track record operating in geographically diverse
markets, solid profitability, steady cash generation,
and healthy financial leverage," says Gloria Tsuen, a Moody's
Vice President and Senior Credit Officer.
"These strengths are counterbalanced by the company's generally moderate
position in competitive markets and focus on wireless services.
In particular, the company faces intense competition in its largest
market of Italy," adds Tsuen.
Moody's estimates that CK Hutchison Group Telecom's adjusted debt/EBITDA
will remain largely stable at about 2.9x over the next 12-18
months. This level of leverage is consistent with its underlying
credit strength.
The Baa1 rating also reflects Moody's expectation that CK Hutchison
Group Telecom will have a good liquidity profile after completing its
refinancing of existing debt with long-term one. With cash
and cash equivalents of HK$13.8 billion at the end of June
2019 and expected operating cash flow of around HKD30 billion, the
company will have more than sufficient resources to cover its estimated
capital spending and license costs.
The rating also considers the following environmental, social and
governance factors.
First, the rating considers increasing scrutiny over the leakage
of customer information for telecommunications operators, although
this is mitigated by CK Hutchison Group Telecom's ongoing investments
in security measures.
Second, the rating considers CK Hutchison Group Telecom's private
company status, its close linkage to CKHH, which in turn has
shareholding concentration in the owner family, and its closely-held
board. These factors are mitigated by disclosures of CK Hutchison
Group Telecom's information through its listed parent, and
board oversight exercised through independent directors at CKHH.
The stable rating outlook reflects Moody's expectation that CK Hutchison
Group Telecom's presence in the markets in which it operates and its financial
metrics will remain steady over the next one to two years.
Moody's could upgrade CK Hutchison Group Telecom's rating if its (1) competitive
positions in local markets and operating performances meaningfully improve,
and (2) adjusted debt/EBITDA declines to below 2.25x and adjusted
retained cash flow (RCF)/debt increases to above 35%, both
on a sustainable basis.
However, Moody's would downgrade CK Hutchison Group Telecom's rating
if (1) the company's competitive positions in local markets or operating
performances weaken, or (2) it pursues an aggressive shareholder
distribution or investment strategy.
Specific metrics for a downgrade include adjusted debt/EBITDA increasing
to above 3.25x, or RCF/debt declining to below 25%.
The principal methodology used in these ratings was Telecommunications
Service Providers published in January 2017. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
CK Hutchison Group Telecom Holdings Limited is a new holding company that
consolidates the European and Hong Kong telecommunications operations
of CK Hutchison Holdings Limited (CKHH). It pools CKHH's telecommunications
assets across Italy, the UK, Austria, Sweden,
Denmark, Ireland and Hong Kong/Macau, with over 95%
of cash flow generating capabilities from Europe. It is fully owned
by CKHH.
CK Hutchison Holdings Limited is one of the largest Hong Kong-based
conglomerates, with a strong presence in Asia and Europe.
Its five core businesses are in (1) ports; (2) retail; (3) infrastructure;
(4) energy; and (5) telecommunications.
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
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.
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.
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.
Gloria Tsuen, CFA
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
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
