Fitch Ratings has affirmed Hong Kong-based CK Hutchison Group Telecom Holdings Limited's (CKGHT) Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) and senior unsecured rating at 'A-'.

The Outlook is Stable. The agency has also affirmed the 'A-' senior unsecured rating of CK Hutchison Group Telecom Finance S.A., a wholly owned subsidiary of CKHGT.

We rate CKGHT using a top-down approach under our Parent and Subsidiary Linkage (PSL) Rating Criteria and equalise the rating with CKGHT's 100% parent, CK Hutchison Holdings Limited (CKHH, A-/Stable). This is based on our assessment of CKHH's 'High' strategic and 'Medium' legal and operational incentives to support its subsidiary.

The Outlook reflects our expectation that the strategic incentives for CKHH to provide support to its subsidiary will likely remain 'High' after the completion of two transactions in the UK and Italy that are pending regulatory approval, despite a reduction in CKHGT's rating headroom.

CKHGT's Standalone Credit Profile (SCP) of 'bbb-' reflects its mobile-focused operation and small scale across several telecom markets. We believe the two pending transactions will not affect the SCP, as lower capex intensity and large upfront cash proceeds will offset the migration of the Italian business to a service company model and reduced geographic diversification from the deconsolidation of the UK business. The separation of network infrastructure from the Italian business will pass the risk of increasing competition to the service company.

Key Rating Drivers

'High' Strategic Support Incentive: We believe CKHH has a 'High' strategic incentive to support CKHGT, as the wholly owned subsidiary contributed 39% of the group's adjusted EBITDA (including dividends from associates and JVs) in 2022 and accounted for 73% of group capex. We give greater weight to our 'High' assessment of the financial contribution subfactor than to our 'Medium' assessment for growth potential, on moderate growth compared with the rest of the group, and 'Low' competitive advantage assessment, based on CKHGT's low operational benefit for CKHH given its overseas subsidiary status.

'Medium' Legal Support Incentive: CKHH's long-dated bond documentation carries cross-default clauses that cover non-listed principal subsidiaries. We assess the legal incentive for CKHH to provide support to CKHGT as 'Medium', because the cross-default clauses do not apply if CKHGT is listed, and only apply if the rating of the principal subsidiary falls below 'BB+'.

'Medium' Operational Support Incentive: Our assessment is driven by 'Low' operational synergies and 'High' management and brand overlap. CKHGT is tightly managed by CKHH, which makes key operational and investment decisions and controls the centralised treasury. The two companies also share the same set of directors and senior management staff.

Asset-Light Strategy Affects PSL Strength: We believe CKHGT's asset-light strategy will likely affect the strength of its links with its parent, because of the potential large reduction in CKHGT's financial contribution to CKHH. CKHGT announced in April 2023 the spin-off of its Italian network assets and the sale of a 60% stake in the new network company to a private equity firm. It also announced in June the merger of its UK telecom operation with Vodafone Group Plc (BBB/Positive), with CKHGT to hold 49% of the merged entity. The two transactions are subject to regulatory approvals.

Lower Headroom for Strategic Support Incentive: If the two proposed transactions become unconditional, we expect to continue to assess the strategic incentive for CKHH to support its subsidiary as 'High', but believe the transactions will reduce the assessment headroom. This is because we expect CKHGT's contribution to CKHH's adjusted EBITDA to fall to around 30%, although it will still be the group's largest EBITDA contributor. In addition, while CKHGT's capex will remain substantial, we estimate it will drop to around 40% of CKHH's total capex.

SCP Resilient to Transactions: We do not expect the pending transactions to greatly affect the SCP. The UK deal will reduce diversification after CKHGT deconsolidates the business, but increase dividend potential from the merged UK entity. Meanwhile, the network company deal will see CKHGT lose its ownership of the network in Italy and will transform the Italian business into a service company. This will raise competition risk, which, combined with a high share of fixed costs for wholesale network services, may squeeze margins. EBITDA from Italy may fall by 25%-30% in 2025 from 2023 levels.

However, the deals will sharply reduce CKHGT's capex intensity and provide large upfront cash, although a majority could be distributed to CKHH. The transactions are also likely to cut CKGHT's overall EBITDA by around 35%, but the proportion of EBITDA from less competitive markets should increase.

Earnings Recovery from 2024: Excluding the pending deals, we expect lower profitability in 2023, due to higher network and energy costs, inflationary pressure and the incremental service fees after the disposal of the tower assets in the UK. However, profitability should recover in 2024 as energy costs stabilise and CKHGT optimises its cost structure. The company has also raised tariffs and increased its value-added services revenue.

Weak Free Cash Flow Generation: We expect high capex intensity from 5G network expansion to continue to weigh on free cash flow generation, though the current capex cycle peaked in 2022. Spectrum spending will rebound from the 2022's lows, as the company acquired spectrum in Ireland for EUR120 million in January and in Sweden for SEK1.2 billion in September. We do not expect significant spectrum auctions in 2024.

Modest Leverage: We expect EBITDA net leverage to remain modest, even under our assumption of upstreaming a large portion of the cash proceeds from the UK tower asset disposals to its parent. We believe the timing of a large dividend payout could be in 2023 or 2024. Nevertheless, CKHGT is committed to maintain EBITDA net leverage at 2.5x or below (2022: 1.2x). We acknowledge that the company has remained prudent in its dividend payout.

Derivation Summary

CKHGT's ratings reflect our assessment of the linkage between CKHH and CKHGT, which is based on a 'stronger parent, weaker subsidiary' path under our Parent and Subsidiary Linkage Rating Criteria. This leads us to rate CKHGT on a 'top-down' approach and equalise its ratings with CKHH, as we believe CKHH has 'High' strategic incentives and 'Medium' legal and operating incentives to support CKHGT. CKHGT accounted for about 39% of CKHH's EBITDA and 31% of its total assets in 2022.

CKHGT's SCP reflects its mobile-focused operations in six European countries and in Hong Kong and Macau, smaller scale and weaker market position as the third or fourth largest operator in most of its markets as well as stiff competition in Italy and the UK, which accounted for 68% of EBITDA in 2022. However, the company's commitment to enhance its cost structure and maintain a prudent financial structure with its modest net leverage supports its SCP.

CKHGT's SCP is weaker than that of Orange S.A. (BBB+/Stable), Vodafone Group Plc (BBB/Positive), Telefonica SA (BBB/Stable), BT Group plc (BBB/Stable) and Royal KPN N.V. (BBB/Stable), despite CKHGT's lower net leverage. The European operators control stronger market shares and enjoy greater platform diversification and service differentiation, with more balanced exposure to fixed and mobile segments. CKHGT, on the other hand, is mainly a mobile operator, with the mobile segment accounting for a vast majority of its revenue.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer:

Low single-digit revenue growth in 2023-2025 (2022: -0.3%)

Operating EBITDA margin of 25%-28% in 2023-2025 (2022: 30%)

Capex/revenue of 17%-20% in 2023-2025 (2022: 23%)

Not factoring in the pending Italy or UK transactions

Total dividend payout during 2023 to 2025 amounting to EUR2.3 billion (2022: nil)


Factors that could, individually or collectively, lead to positive rating action/upgrade:

Positive rating action on CKHH.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

A perceived weakening of the incentives for CKHH to provide support to CKHGT.

Negative rating action on CKHH.

Liquidity and Debt Structure

Adequate Liquidity: We expect CKHGT to maintain adequate liquidity. It had readily available cash of EUR3.2 billion at end-June 2023, against short-term debt and a current portion of long-term debt of EUR2.5 billion. This comprised EUR1.5 billion in bonds due October 2023 and EUR1.0 billion in term loans due December 2023. The company has already refinanced the bonds with an 18-month EUR1.5 billion term loan facility. We expect CKHGT to use the proceeds from the two pending deals to refinance its debt. It could also use the fair value of its listed investment of EUR1.2 billion at end-June 2023, mainly consideration shares from the disposal of tower assets in 2022, for liquidity headroom.

Issuer Profile

As CKHH's telecom arm, CKHGT operates mobile services in Italy, the UK, Sweden, Denmark, Austria and Ireland. It also operates mobile services in Hong Kong and Macau. CKHGT had 39.9 million active mobile customers in Europe and 3.4 million active mobile customers in Hong Kong and Macau at end-June 2023.


The principal sources of information used in the analysis are described in the Applicable Criteria.

Public Ratings with Credit Linkage to other ratings

Fitch assesses CKHGT using a top-down rating approach, resulting in a rating that is equal to that of CKHH.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit

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