Fitch Affirms Hutchison Whampoa With Stable Outlook

Debt ratings agency, Fitch ratings has affirmed Hutchison Whampoa's Long-term foreign currency Issuer Default Rating (IDR) at 'A-'. The Outlook remains Stable. At the same time, Fitch has affirmed Hutchison's Short-term IDR at 'F2' and its senior unsecured rating at 'A-'.

The affirmations reflect the fact that Hutchison's key credit strengths - geographical and industrial diversity, high liquidity and a well-spread debt maturity profile - remain intact in a more difficult economic environment.

While comfortable with the conglomerate as a whole, Fitch warned that Hutchison's 3G telecommunications segment continues to underperform due to its relatively small shares of the highly competitive markets in which it operates - primarily UK and Italy - where the regulatory environments also remain challenging. While the segment broke even at the EBITDA level in H109 after registering a loss of HKD5.2bn in full year 2008 (after excluding all one-off items), it still faces challenges in generating meaningful free cash flow.

However, Fitch believes that this segment will no longer be a major cash drain on the rest of the company as its capital expenditure and customer acquisition costs have fallen. Additionally, in line with its decision to enter a joint-venture with Vodafone in respect of its Australian 3G business, Fitch believes that management would consider similar opportunities for the principal 3G businesses in the event they are unable to generate a material positive contribution to group earnings and cash flow.

The Stable Outlook reflects Fitch's view that Hutchison's business profile remains largely unchanged and that while the ongoing recession has delayed Hutchison's deleveraging process, it will likely resume once the global economy turns around. Net debt, including debt from minority shareholders, remained steady at HKD184.8bn at end H109 compared to HKD183.4bn at end 2008, but the company's EBITDA deteriorated during the period.

A negative rating action will be likely if it becomes clear that there will be no meaningful improvement in the absolute level of EBITDA at the group level and no resumption of the previous deleveraging trend after 2009.

Posted to the site on 17th August 2009