Rating Action: Moody's assigns A2 rating to CK Hutchison's guaranteed USD notesGlobal Credit Research - 12 Apr 2021Hong Kong, April 12, 2021 -- Moody's Investors Service has assigned an A2 backed senior unsecured rating to the proposed USD notes to be issued by CK Hutchison International (21) Limited and irrevocably and unconditionally guaranteed by CK Hutchison Holdings Limited (CKHH; A2 stable).The rating outlook is stable.CKHH plans to use the proceeds mainly to refinance existing debt incurred for general corporate purposes.RATINGS RATIONALE"CKHH's A2 issuer rating mainly reflects the company's strong business position, diversified operations, balanced portfolio and excellent liquidity," says Gloria Tsuen, a Moody's Vice President and Senior Credit Officer.Most of the group's businesses have strong competitive positions in their respective markets or are in defensive industries, and generate steady cash flow. These strengths mitigate the group's moderate leverage metrics, its telecommunications segment's moderate market positions, and event and operational risks arising from potential acquisitions.CKHH will use the bond proceeds primarily to refinance existing debt. As such, the bond issuance will not affect the company's credit profile.Moody's expects CKHH's earnings and cash flow to improve this year as a result of a gradual economic recovery and additional cash proceeds from its tower sales, with adjusted funds from operations (FFO)/net debt to increase to around 26% in 2021 from around 22% in 2020. Likewise, its FFO interest coverage will increase to around 7.3x from 7.1x over the same period. Such levels are consistent with the company's A2 rating.CKHH's liquidity is excellent. At the end of December 2020, it had cash, cash equivalents and liquid funds -- excluding listed equity securities -- of about HKD163 billion, and available committed bank facilities of about HKD21 billion. These resources were more than sufficient to cover its short-term debt of about HKD48 billion.The ratings also consider the following environmental, social and governance (ESG) factors.Moody's regards the coronavirus pandemic as a social risk under its ESG framework, given the substantial implications for public health and safety. Additionally, the pandemic has significantly affected some of CKHH's businesses.In terms of governance considerations, the ratings reflect CKHH's concentrated ownership by the Li family and related-party transactions between various CK-related entities. These risks are mitigated by the company's listed status, its extensive 19-member board including eight independent non-executive directors, its financial disclosure transparency, its proven track record of prudent financial management and the absence of major cash leakages to shareholders.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe stable rating outlook reflects Moody's expectation that the group's financial profile will remain steady in the absence of any event risk, and that the group will maintain significant liquidity.Moody's could upgrade the ratings if CKHH's (1) major operations show a sustained improvement in the areas of business stability and market position; and (2) following the completion of all the telecom tower sales, adjusted FFO/net debt rises above 37%, adjusted FFO interest coverage exceeds 7.0x, and unadjusted and adjusted net debt/net capitalization decline to below 15% and 28%, respectively.On the other hand, Moody's could downgrade the ratings if (1) CKHH's key debt metrics weaken, (2) the stable income from the group's non-telecommunications businesses is disrupted, (3) the improving trend at 3 Group Europe reverses, or (4) the group makes large debt-funded acquisitions.Indicators of downward pressure on the rating include, following the completion of all the tower sales, CKHH's (1) adjusted FFO/net debt falling below 25%, (2) adjusted FFO interest coverage falling below 5.0x, or (3) unadjusted and adjusted net debt/net capitalization rising above 20% and 38%, respectively.The principal methodology used in these ratings was Investment Holding Companies and Conglomerates published in July 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1125855. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.CK Hutchison Holdings Limited is one of the largest Hong Kong-based conglomerates with a strong presence in Asia and Europe. Its five core businesses are: (1) ports; (2) retail; (3) infrastructure; (4) energy; and (5) telecommunications. The company, which is listed on the Hong Kong Stock Exchange, is approximately 30.2%-owned by Li Ka-shing's family trust, Li Ka-shing and his son, Li Tzar Kuoi.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. 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