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Announcement:

Moody's changes China Merchants' Baa2 outlook to stable from negative

16 Nov 2010

Approximately USD1billion in debt securities affected

Hong Kong, November 16, 2010 -- Moody's Investors Service has today changed to stable from negative the outlook of China Merchants Holdings (International) Co Ltd's ("CMHI") Baa2 issuer and senior unsecured bond ratings.

"CMHI's operating performance -- including revenue and profitability-- has been improving in 2010 as better global economic conditions drive recoveries in international trade and container flows," says Elizabeth Allen, a Moody's VP/Senior Credit Officer.

"These developments will benefit CMHI's overall credit profile and help keep its credit metrics at levels appropriate for the Baa2 rating," says Allen.

"Furthermore, after accounting for some moderate levels of expansion and overseas investments, CMHI's near-term credit metrics are expected to strengthen with funds from operations(FFO)/debt likely to rebound to the mid-to-high teens from a slightly weak level of about 13% at end-1H2010," says Allen.

"And although its 1H2010 results already incorporate strong consolidated performances, further improvements should occur, given that there is a time lag in the receipt of dividends from its associates and joint-venture investments," says Allen.

CMHI's Baa2 rating is supported by its well-located and quality portfolio in China, including strong market shares at its key ports. It has also established a good operating track record with stable cash flow generation, and its ability to manage capex during the last down cycle further helped protect its financial profile.

On the other hand, CMHI's ongoing investments in emerging markets could raise its business risk profile. Moody's draws comfort from their moderate pace and size thus far, and expects the company to remain prudent.

The rating also considers that CMHI has no majority ownership and therefore has no control over certain of its major port investments. Such concern is partially mitigated by the sound underlying performance of these ports and a track record of stable dividend income flow.

A rating upgrade is unlikely in the near term given the size of the company's investment plan. But, upward rating pressure could occur in the medium term, if CMHI can maintain its profitability and financial discipline in its investments, such that FFO/debt consistently stays about 25-30% and FFO/interest above 4.5-5x.

Furthermore, CMHI must demonstrate solid execution of its growth strategy, keep a clear focus on its core business in China, and manage its overseas investments prudently. A strong liquidity profile is also expected.

The rating will experience downward pressure if 1) CMHI's investments suffer significant competitive pressure; 2) it makes any material debt-funded acquisitions; or 3) its emerging market operations account for a material proportion of its cash flow.

Key financial indicators for a downgrade include FFO/debt falling below 15%, and/or FFO/interest dropping below 3.5x.

Moody's last rating action on CMHI was taken on 21 April, 2009, when Moody's changed the outlook of the Baa2 rating to negative.

CMHI's ratings were assigned by evaluating factors 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 CMHI's core industries; Moody's thus considers CMHI's ratings are comparable to those of other issuers of similar credit risk.

China Merchants Holdings (International) Co Ltd, headquartered in Hong Kong, is engaged in port investments and container manufacturing. It has port investments across China, including key investments in Shenzhen and Shanghai, both of which are among the world's top five ports. As at 30 Jun 2010, CMHI is 55.59% owned by China Merchants Group Ltd (unrated), a conglomerate ultimately owned by the State Council of China. CMHI is listed on the Hong Kong Stock Exchange.

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.)

Moody's changes China Merchants' Baa2 outlook to stable from negative
No Related Data.
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