RPT-Fitch Downgrades Swire Pacific's IDR to 'A-'; Outlook to Stable
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May 30 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has downgraded Hong Kong-based Swire Pacific Limited's (Swire Pacific) Long-Term Foreign-Currency Issuer Default Rating (IDR) and foreign-currency senior unsecured rating to 'A-' from 'A'. The Outlook has been revised to Stable from Negative. Fitch has also downgraded Swire Pacific's foreign-currency senior unsecured rating and the rating of Swire Pacific MTN Financing Limited to 'A-' from 'A'.
The downgrade reflects the increase in direct debt funding by Swire Properties Limited (Swire Properties; A/Stable), its 82%-owned subsidiary. This increases Swire Pacific's structural subordination to Swire Properties' operating cash flows. The current rating reflects continued stable performances in Swire Pacific's beverages and trading & industrial divisions, and improved performances in its aviation and marine services divisions. It also continues to maintain a prudent financial profile with good access to funding.
KEY RATING DRIVERS
Increased Structural Subordination: At end-2013, 61% of Swire Properties' borrowings were sourced externally instead of from Swire Pacific, up from 51% at end-2012 and 26% at end-2011. This trend increases Swire Pacific's structural subordination to the stable operating cash flows of Swire Properties, which come from its investment properties portfolio.
Strong Rental Income from Swire Properties: Fitch has affirmed Swire Properties' rating of 'A' with Stable Outlook, reflecting its well-established Grade A office portfolio in both the central business district and non-central areas in Hong Kong. The gross rental income from Swire Properties' investment properties in Hong Kong has posted 2.9% CAGR since 2009. It reached HKD8bn in 2013 and has been consistently above HKD7bn in the past five years. The investment property portfolio provided a strong and stable investment property EBITDA to gross interest expense ratio of 4.5x-4.8x for Swire Properties and of 3.4x-4.5x for Swire Pacific for 2010-2013.
Higher Capex for Marine Services: Swire Pacific has made capex of HKD12.9bn in the marine services division since 2011 to revitalise its ageing fleet and to shift to deep-sea marine services. The company budgeted a further HKD7.2bn capex for the next three years. This has weakened Swire Pacific's free cash flows and increased its non-property-related debt to HKD27.0bn at end-2013 from HKD19.8bn and HKD10.8bn at end-2012 and end-2011 respectively. Continuación...