May 30 - Fitch Ratings has assigned Hutchison Whampoa Europe Finance (12) Limited’s proposed Euro-denominated notes expected ratings of ‘A-(exp)'. The notes are to be unconditionally and irrevocably guaranteed by Hutchison Whampoa Limited (Hutchison, ‘A-'/Stable/‘F2’). The final ratings are contingent upon the receipt of final documents conforming to information already received.
Hutchison’s IDR reflects the company’s geographical and industry diversification, strong liquidity arising from high cash balances, well-spread debt maturity profile and access to diverse sources of capital. Hutchison continues to derive stable cash flow generation from its core businesses such as ports and properties, and to improve the performance of its retail division.
Hutchison had cash and liquid balances of HKD87bn and committed undrawn credit limits of HKD7.24bn at end-December 2011. Approximately 14% of its consolidated debt (including debt from non-controlling shareholders) is due to mature by end-December 2012, while its cash balances at end-December 2011 amounted to around 41% of its total outstanding debt.
Negative rating factors include Hutchison’s track record of acquisitions, heavy capex programme and cash drain from its 3G business which turned EBIT-positive only in 2010. Its financial leverage - defined as adjusted debt net of cash/operating EBITDAR - remains high for its rating but Fitch notes that it has been improving due to continued profit growth. Financial leverage was further reduced by the partial divestment of its mature Hong Kong and southern China ports assets via the listing of Hutchison Ports Holding Trust in March 2011.
The Stable Outlook factors in a continued deleveraging trend, given the stable performance of most of its operations and the gradual improvement of its 3G business. Short-term increases in leverage associated with acquisitions may not necessarily lead to negative rating action, unless Hutchison’s business risk profile changes significantly. However, any irreversible increase in leverage or a sharp increase in cash drain from the 3G segment may result in negative rating action.