CK HUTCHISON HOLDINGS LIMITED
Fitch Ratings has assigned
The proposed senior unsecured notes will be issued in two tranches by
CKHH's ratings and the Outlook reflect the company's strong business profile, geographical diversification and stable cash flow generation from its high-quality ports, retail, infrastructure, and telecommunication businesses, and management's strong record of prudent financial management.
Key Rating Drivers
Challenging Operating Environment: We expect higher costs and a challenging operating environment to limit CKHH's earnings recovery in 2023, as weaker global expansion tempers growth in its retail and ports businesses and intense competition and higher costs affect the telecom business.
The retail division's revenue and margin were squeezed in 2022 by a weak economic environment in
Earnings Decline in Telecom: CKHH faces intense competition in its main telecom market,
Significant Headwinds in
Faster 5G Rollout: We expect the deterioration in telecom earnings to be partly offset by faster 5G rollout in other markets, such as the
Infrastructure Resets Mostly Complete: The more stringent regulatory resets that came into effect over the past few years for
Cash flow visibility over the next few years has improved and we believe regulated utilities' asset bases and revenue may benefit from high inflation in the
Tower Sale Completed: We expect CKHH's financial profile to be supported by
Proceeds Support Credit Profile: CKHH plans to use the proceeds from its tower sales for capex, deleveraging and shareholder returns. The use of the proceeds is not yet finalised, because the
Structural Subordination Risk Mitigated: CKHH's port, infrastructure and telecom businesses are capital intensive and raise leverage, which constrains the ratings. There is also some structural subordination of cash flow, especially in utility and infrastructure assets, as there is debt at the asset-owning level and the operating cash flow of these businesses can only be accessed via dividends. However, cash from businesses other than infrastructure or CKHT and dividend inflow can cover the parent's interest burden, mitigating the structural subordination risk.
Derivation Summary
CKHH's ratings are supported by its geographical and segment business diversification, which provides stable cash flow and underpins its strong business profile. A solid record of conservative and prudent financial management and a coherent strategy also support the business profile.
Few peers have similar business models, as CKHH is a conglomerate with infrastructure, port, retail and telecom segments. It is somewhat comparable with
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Fitch-adjusted revenue to rise by an average of 2% in 2023-2024 (2022: -6.5%)
Fitch-adjusted EBITDA margin of around 23% in 2023-2024 (2022: 23.8%)
Capex of
No major acquisitions or disposals in 2023-2024
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Provided CKHH's business profile remains unchanged:
EBITDAR net leverage of 3.1x or less on a sustained basis; and
positive free cash flow after acquisitions and dividends for a sustained period.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
EBITDAR net leverage exceeding 4.1x for a sustained period;
substantially negative free cash flow after acquisitions and disposals;
significant changes in the business mix and capital structure management that are adverse to CKHH's credit risk profile; and
a weakening quality or decreased quantity of recurring cash.
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Strong Liquidity, Funding Access: CKHH's ratings are supported by its robust liquidity profile and easy access to capital. Reported cash and cash equivalents were
Issuer Profile
CKHH is a
Summary of Financial Adjustments
Fitch has adjusted lease liabilities as per its Corporate Rating Criteria. Depreciation and amortisation and interest expenses are reclassified as operating costs in the income and cash flow statements. Fitch has adjusted debt by adding 8x annual operating lease expenses in the retail segment.
Date of Relevant Committee
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This 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. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
(C) 2023 Electronic News Publishing, source
