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Rating Action:

Moody's upgrades WTT to Ba3 from B1 following completion of merger with HKBN; outlook positive

20 May 2019

Hong Kong, May 20, 2019 -- Moody's Investors Service has upgraded to Ba3 from B1 the corporate family rating of WTT HK Limited, and the rating on the senior unsecured notes issued by WTT Investment Ltd and guaranteed by WTT HK Limited.

The outlook is positive.

Today's rating action follows the completion on 30 April 2019 of the merger between WTT and HKBN Ltd., and concludes Moody's review for upgrade initiated on 9 August 2018.

RATINGS RATIONALE

"The upgrade primarily reflects the incorporation of a one-notch rating uplift based on the increased likelihood of extraordinary support from HKBN, given HKBN's stronger credit quality and the expectation that WTT will become a core part of HKBN group," says Gloria Tsuen, a Moody's Vice Present and Senior Credit Officer.

Moody's support assumption reflects WTT's high strategic importance to HKBN's operations, as the former will significantly strengthen the latter's core enterprise fixed-line business, enabling it to achieve greater economies of scale and cost savings.

"The positive outlook reflects the likelihood that as WTT and HKBN become more integrated, so will their credit profiles and credit quality," adds Tsuen.

HKBN merged with WTT for a consideration of around HKD5.5 billion in new HKBN shares and vendor loan notes, and it is also assuming WTT's existing $670 million USD senior unsecured notes.

The merger will strengthen HKBN's competitive position in Hong Kong's enterprise fixed-line telecom market, with a widened network coverage, and a larger and more diversified customer base. In particular, WTT and HKBN complement each other as the former focuses on medium and large-sized enterprises, while the latter focuses on small and medium-sized enterprises.

WTT's operations in turn will benefit from the expected synergies with HKBN, which is a larger and more integrated telecom service provider in Hong Kong, providing inter alia residential fixed-line services and mobile services.

The support assumption also considers HKBN's ability to render support, underpinned by its stronger business profile and credit metrics even after accounting for WTT's existing debt.

Moody's estimates that HKBN registered adjusted debt/EBITDA of around 3.4x for the 12 months to February 2019, significantly lower than the 6.0x reported by WTT for 2018.

Moody's estimates that the combined company will record adjusted debt/EBITDA of around 4.9x (with vendor loan notes included in adjusted debt) on a proforma basis for HKBN's fiscal year ending August 2019, and that leverage will decrease to around 4.4x by fiscal 2020 as EBITDA grows at the combined company.

The upgrade also reflects Moody's expectation that HKBN's major operating subsidiaries will provide guarantees for the senior unsecured notes, which will eliminate the risk of structural subordination.

WTT's b1-level standalone credit quality continues to reflect its established infrastructure with modest capital spending needs, diverse customer base, high profitability, stable cash flow generation and adequate liquidity.

On the other hand, WTT's credit quality remains constrained by its geographic concentration in Hong Kong, and its modest scale when compared to global telecommunications peers.

The ratings could be upgraded if (1) HKBN successfully integrates WTT's operations, and (2) the provision of guarantees from HKBN's operating subsidiaries for the senior unsecured notes is completed as expected.

The outlook on WTT could return to stable if (1) HKBN fails to fully integrate WTT and credit differentiation persists between itself and WTT, although this development is unlikely, (2) the combined company's market share or profitability erodes significantly, or (3) the combined company's adjusted debt/EBITDA remains elevated at above 5x over the next 12-18 months.

The principal methodology used in these ratings was Telecommunications Service Providers in January 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Established in 1995, WTT (formerly known as Wharf T&T) is an enterprise-focused fixed-line telecom operator in Hong Kong. WTT offers a full range of products, including data connectivity, broadband, fixed-line voice, cloud services and a wide range of in-house ICT solutions.

Founded in 1999 and listed since 2015 in Hong Kong, HKBN Ltd. is a fixed-line telecommunications network service provider offering residential and enterprise solutions.

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.

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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

No Related Data.
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