Cheung Kong Infrastructure Holdings Rated 'A-'
02 July, 1997 -- Hong Kong
Standard & Poor's today has assigned its 'A-' long-term corporate credit rating to Cheung Kong Infrastructure Holdings Ltd. (CKI). The company was formed in 1996 as a subsidiary of the Cheung Kong Group and is now substantially held by publicly listed group member, Hutchison Whampoa Ltd. (rated 'A+'). CKI currently holds about 35% of Hong Kong Electric (HKE) and owns two Hong Kong material companies: Green Island Cement Holdings (GIC) and Anderson Asia Holdings. CKI also has acquired interests in several infrastructure projects in China. The rating reflects CKI's strong financial profile.
Additional rating factors include:
- The company has a conservative financial profile, with projected debt-to-total capitalization around 20%, and cash-flow interest cover projected at about 5 times (x) over the next three years after taking into consideration a possible debt issue in 1997. The company also has a high level of financial flexibility going forward resulting from a predictable income stream from Hong Kong Electric, which exhibits a very strong financial profile.
- The company benefits from implicit support from strong parent companies, Cheung Kong (Holdings) Ltd. and Hutchison Whampoa Ltd. The Cheung Kong Group is one of Hong Kong's leading corporates. It enjoys strong business positions in a variety of industries and benefits from strong earnings, substantial growth prospects, and significant diversification across industries.
- CKI's cement, concrete, and aggregates businesses (GIC and Anderson Asia Holdings) have strong fundamentals in marketing and cost structure, as well as leading competitive positions. In Hong Kong, GIC enjoys a 45% market share in cement supply, and Anderson Asia Holdings holds a 23% market share in concrete and aggregates businesses. Although GIC and Anderson Asia Holdings are gradually expanding their infrastructure materials businesses in China, the related planned capital expenditures are modest.
- Experienced management is in place in all of CKI's business lines and affiliated companies.
These strengths are moderated to some degree by the following risks:
- Although CKI holds a diverse portfolio of assets, an increasing share of the company's revenue over time about one fourth) is projected to be derived from China transportation and power projects. While these investments can be lucrative, they will require substantial capital expenditure, and revenues can be subject to traffic volume risk, toll or power tariff pricing approval risk, operational risks, and in some cases construction completion risk.
- As a holding company for infrastructure businesses, CKI receives residual cash flow sourced from dividends and shareholder loan repayments from its subsidiaries, which Standard & Poor's regards as being less reliable than direct access to operating cash flows. Nevertheless, it is recognized that in most cases, this risk is mitigated by the strong cash flows and relatively modest gearing of affiliates and subsidiaries.
- The company's cement, concrete and aggregates businesses tend to be cyclical and are subject to slowdowns in new construction. This is mitigated by high barriers to entry in the Hong Kong market.
The stable outlook reflects expectations for reliable dividend streams from Hong Kong Electric as well as solid income from the cement, concrete, and aggregates businesses. The rating, however, is balanced by the company's aggressive plans to increase investment in China infrastructure projects, including transportation, power, and water treatment projects.