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I AGREE
31 Mar 2011
Approximately USD21 billion in debt securities affected
Hong Kong, March 31, 2011 -- Moody's Investors Service says that Hutchison Whampoa Ltd's (HWL) full-year
results for FY2010 were generally in line with Moody's expectations,
and have no immediate impact on the company's A3 issuer and bond ratings.
The ratings outlook remains negative.
"Benefiting from the improvement in the macro-operating environment,
HWL's consolidated operating performance for FY2010 improved over FY2009,
reflecting growth in most sectors, except for its Husky operations,
and finance and investments," says Elizabeth Allen, a Moody's
Vice President and Senior Credit Officer.
Revenue and EBITDA growth was driven by a stronger performance by the
ports, retail and property businesses, as well as a higher
contribution from Hutchison Telecommunications Hong Kong.
However, this improvement was offset by the weaker performance of
Husky Energy (Baa2, review for possible downgrade), which
still requires significant capital for expansion. Furthermore,
finance and investments income was significantly lower than FY2009.
And, Hutchison Asia Telecommunications, the emerging market
telecoms businesses, remains loss-making.
"The performance of the 3Group continues to improve from prior years
and from the first half. However, its achievement of EBIT
positive was mainly a result of one-off gains in the UK and Italy.
It still faces intense competitive pressures and generally remains a smaller
player than its competitors. Further improvement in performance
is expected to be gradual. Overall, this business was still
free cash flow negative in 2010," adds Allen
During 2010, HWL's capex spending increased by HKD2.8bn
to HKD22.3bn. It further invested a total of HKD20.7bn
in Husky and its UK electricity distribution assets as well as privatization
of Hutchison Telecommunications International Ltd. Therefore,
despite benefiting from a foreign exchange translation of HKD3.8bn,
unadjusted net debt (per Moody's calculation) was HKD154bn,
flat against 1H2010. Moody's calculation of net debt includes
classifying HWL's perpetual capital securities as having 50%
equity and 50% debt components and Cheung Kong Infrastructure's
perpetual capital securities as having 25% equity and 75%
debt components. By contrast, HWL classifies them all as
equity under IFRS.
Overall, HWL's consolidated credit metrics improved slightly,
but are still modest for the rating. Moody's estimated that
adjusted funds from operations (FFO)/net debt improved from about 15%
in 1H2010 to 18% for FY2010. Moody's calculation of
unadjusted net debt to capitalization fell from 33% to 30%.
Such a modest positive development is in line with our expectation when
we confirmed the rating with a negative outlook in October 2010.
Since year-end, HWL has raised net proceeds of HKD45bn by
listing Hutchison Port Holding Trust (the Trust), which holds stakes
in key ports in South China, on the Singapore Stock Exchange.
HWL currently has a stake of about 27.6% in the Trust,
and its wholly-owned subsidiary continues to manage these assets
under a management contract. Such cash inflows significantly reduced
HWL's reported net debt at the outset, such that pro-forma
unadjusted net debt to capitalization in the low 20%.
This effective improvement in HWL's equity base is supportive of
the ratings. However, funds from operations will also be
lower because this IPO will result in a reduction of consolidated cashflow
from operations by HKD5.9bn (based on 2010 numbers), but
will be offset by dividends, management fee income and returns on
the cash proceeds receipts. At the same time, dividend contributions
from Husky will diminish as HWL has agreed to opt for scrip for two years.
Moody's estimates that pro-forma adjusted FFO/net debt will
be close to 20%.
Moody's considers that HWL's strong liquidity position continues
to support the rating. Its liquidity profile remains strong with
cash reserves of HKD110bn against debt of about HKD23bn due by end-2011.
In its assessment, Moody's excludes equity holdings from cash.
HWL's A3 rating has a negative outlook and reflects the modest historical
credit metrics for the rating. Moody's believes that --
barring any significant new investments -- HWL's operating
performance should further improve. Moody's will assess HWL's
financial profile, especially any improvement of its cash flow/debt
measurement in light of the positive impact of the listing of the Trust,
HWL's business plan for 2011 and the macro-environment.
The rating outlook could revert to stable if HWL's financial profile improves,
such that FFO/net debt reaches around 25%, and unadjusted
and adjusted net debt to capitalization measures around 25% and
40%.
On the other hand, the rating could be downgraded if FFO/net debt
does not improve and remains significantly below 25%, while
FFO/interest coverage drops below 3.5-4x, and unadjusted
and adjusted net debt to capitalization exceed 25% and 40%;
2) income stability from its established businesses is disrupted,
with recurring annual EBITDA falling below HKD25-30 billion;
3) the cash drain due to 3G does not slow materially; and/or 4) large
debt-funded acquisitions occur in its established or 3G businesses.
A material weakening of its liquidity profile could also result in downward
rating pressure.
Moody's last rating action with regard to HWL was taken on 29 October
2010, when its A3 issuer and bond ratings were confirmed with a
negative outlook.
HWL's ratings were assigned by evaluating factors that 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
HWL's core industries; Moody's thus considers HWL's ratings as comparable
to those of other issuers of similar credit risk.
Hutchison Whampoa Ltd is a Hong Kong-based conglomerate with a
strong presence in Asia and Europe. Its five core businesses are:
(1) ports and related services; (2) property and hotels; (3)
retail; (4) telecommunications; and (5) energy, infrastructure,
finance & investments, and others. HWL is around 49.97%-owned
by Cheung Kong (Holdings) Ltd, which was around 40% owned
by the family trusts of Mr. Li Ka-shing as of December 2010.
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.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's comments on Hutchison's full-year results
No Related Data.
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