NOTE: On April 1, 2015, the press release was corrected as follows: The following paragraphs were added as the 23rd to 25th paragraphs of the press release:
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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.
Revised release follows.
Hong Kong, March 30, 2015 -- Moody's Investors Service has assigned a Baa2 rating to HKT Capital No.
2 Limited's proposed USD senior unsecured notes due 2025.
HKT Capital No. 2 is a direct and wholly-owned subsidiary
of Hong Kong Telecommunications (HKT) Limited (HKT, Baa2 stable).
The proposed notes will be irrevocably and unconditionally, jointly
and severally guaranteed by Hong Kong Telecommunications (HKT) Limited
and its parent, HKT Group Holdings Limited (HKT Group, unrated).
The rating outlook is stable.
HKT Group is a direct and wholly owned subsidiary of HKT Limited (unrated),
which in turn is listed on the Hong Kong Stock Exchange.
HKT is an indirect and wholly owned subsidiary of HKT Group and is HKT
Limited's principal operating entity. Moody's therefore considers
HKT Limited's operating and financial metrics when assessing HKT's credit
risk profile.
The bond proceeds will be used primarily to refinance existing debt,
including, PCCW-HKT Capital No.3 Limited's USD500
million (HKD3.9 billion) notes due July 2015.
RATINGS RATIONALE
HKT Limited has reduced its total debt by HKD7.5 billion since
June 2014 to HKD36.4 billion in FY2014.
We estimate adjusted debt/EBITDA at 3.9x in FY2014 (or 3.5x,
assuming a full-year contribution from CSL), and expect it
to fall within the 3.4-3.5x range in FY2015,
benefitting from steady underlying growth in TSS and mobile, a full-year
earnings contribution from CSL, and further cost synergies over
the next 12 to 18 months.
"The proposed bond issuance will cause a temporary spike in HKT
Limited's leverage as of June 2015, but since the proceeds will
be used for refinancing, the impact on leverage will be neutral
by end-2015," says Gloria Tsuen, a Moody's Vice
President and Senior Analyst.
"However, the transaction will materially term out HKT Limited's
debt maturity profile, a development which will be credit positive,"
adds Tsuen.
Moody's notes that HKT Limited's leverage remains high for its Baa2
rating, although that is mitigated by the company's strong operating
profile and leading market positions in fixed line, broadband and
wireless, which are further complemented by the leadership of its
parent, PCCW Limited (unrated) in internet protocol TV (IPTV).
HKT Limited will refinance all its near-term debt maturities when
they come due. It should have no need to increase its debt,
in the absence of a fundamental shift in its business model or a major
acquisition.
"HKT Limited's FY2014 results were in line with our expectations.
Its revenue grew 26% year-on-year, and EBITDA
grew 30% over the same period, reflecting stable performances
from its telecommunications services segment, as well as the consolidation
of CSL with its mobile business," adds Tsuen who is also Moody's
Lead Analyst for HKT.
The stable outlook reflects our expectation that HKT Limited will maintain
its leading market positions in all major segments and maintain adjusted
debt/EBITDA of 3.0x-3.5x and adjusted EBITDA margin
of approximately 40% on a sustained basis.
Upward rating pressure is unlikely because HKT Limited's relatively high
leverage for its rating level is likely to persist.
However, an upgrade would be possible if HKT Limited retains its
solid market positions in all major segments and improves its financial
profile significantly.
Specific metrics that we will consider for an upgrade include: adjusted
debt/EBITDA below 2.75-3.0x on a sustained basis,
adjusted EBITDA margins above 45%, and retained cash flow/debt
improving to 25%.
Downward pressure on the rating could materialize if (1) HKT Limited loses
its leading position in the Hong Kong market; (2) the cooperation
between PCCW's IPTV business and HKT Limited decreases; or (3) HKT
Limited pursues an aggressive distribution and investment strategy that
results in elevated debt levels.
Specific indicators that we would look for include: (1) adjusted
debt/EBITDA above 3.75x; or (2) adjusted EBITDA margins below
35%.
We will also consider the actions and acquisition appetite of PCCW and
any resultant negative impact on the credit profiles of Hong Kong Telecommunications
(HKT) Limited and HKT Limited.
The principal methodology used in this rating was Global Telecommunications
Industry published in December 2010. Please see the Credit Policy
page on www.moodys.com for a copy of this methodology.
Hong Kong Telecommunications (HKT) Limited — the former incumbent
integrated telecommunications provider in Hong Kong — is wholly
owned by HKT Group Holdings Limited, which in turn is wholly owned
by HKT Limited.
HKT Limited is 63.07%-owned by PCCW Limited.
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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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.
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
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
SUBSCRIBERS: (852) 3551-3077
Laura Acres
Associate Managing Director
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's assigns Baa2 to HKT's senior unsecured guaranteed notes; outlook stable