CK HUTCHISON HOLDINGS LIMITED
Fitch Ratings has affirmed the Long-Term Issuer Default Rating on
The Outlook is Stable. The senior unsecured rating has also been affirmed at 'A-'.
CKHH's ratings and Outlook reflect its 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.
Fitch expects CKHH's earnings to deteriorate in 2022 reflecting the challenging economic environment, especially in the telecom and retail divisions, which will lead to higher EBITDAR net leverage, although the ratio should remain within our negative sensitivity.
Key Rating Drivers
Challenging Operating Environment: We expect the telecom business to continue to be affected by intense competition in
The ports division recovered from the pandemic shock in 2021 and posted robust earnings during 1H22 despite global supply-chain constraints. However, growth in 2H22 is likely to slow on weaker economic growth in key markets. Fitch expects CKHH's overall earnings recovery to be limited in 2023 as weaker global economic growth will temper growth in its ports and retail businesses. The strong
Earnings Decline in Telecom: CKHH faces intense competition in its main telecom market,
Significant Headwinds in
Faster 5G Rollout: The deterioration in telecom earnings is expected to be partly offset by faster 5G rollout in other markets such as
Infrastructure Resets Mostly Complete: The more stringent regulatory resets that came into effect over the past few years for
Furthermore, we believe cash flow visibility over the next few years has improved with only
Tower Sale Close to Completion: 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 as 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 flows, especially in utility and infrastructure assets, as there is debt at the asset-owning level and the operating cash flows 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, which mitigates the structural subordination risk.
Derivation Summary
CKHH's ratings are supported by its business diversification by geography and segment, which provides stable cash flows and underpins its strong business profile. A solid record of conservative and prudent financial management and a coherent strategy also support the business profile.
There are few peers with similar business models as CKHH is a conglomerate with infrastructure, port, retail and telecom segments. However, CKHH is somewhat comparable with
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
Fitch-adjusted revenue to decline by 5% in 2022
Fitch-adjusted EBITDA margin of around 22%-23% in 2022-2023
Dividend payout ratio of around 30% per year
Capex of
No major acquisitions or disposals in 2022-2023
Cash proceeds of
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Provided the business profile of CKHH remains unchanged,
EBITDAR net leverage of 3.1x or less on a sustained basis; and
Positive FCF 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 FCF after acquisitions and disposals;
Significant changes in the business mix and capital structure management that are adverse to its credit risk profile;
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, Access to Funding: 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 made adjustments related to 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 the debt by adding 8x annual operating lease expenses in the retail segment.
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
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