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Fitch: Hutchison's Ratings Not Immediately Affected by Potential O2 Deal

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Fitch Ratings said that Hutchison Whampoa's ratings are not immediately affected by its potential acquisition of O2 UK.

Hutchison is still conducting due diligence on O2 UK and the acquisition remains subject to the two sides agreeing on final terms and signing definitive agreements and obtaining the required corporate and regulatory approvals.

Hutchison announced on 23 January 2015 that it has entered into exclusive negotiations with Telefonica for the potential acquisition of the latter's UK subsidiary, O2 UK, for GBP9.25bn in cash upon closing of the transaction and up to GBP1bn in deferred upside interest sharing payments, which will be payable after the combination of Hutchison's existing mobile operations in UK and O2 UK's business reach an agreed cumulative cashflow threshold.

The business profile of Hutchison's telecommunications segment will be greatly enhanced if the acquisition materialises. It would command the largest market share in UK with over 40% of mobile subscribers compared to its current position of being the smallest operator with 12% as at 30 June 2014.

The impact of the transaction on Hutchison's credit profile cannot be determined now as the financing plan has not been announced. Hutchison has included non-recourse debt and equity financing in other large acquisitions in the past. Furthermore, Hutchison is in the midst of a larger group-wide restructuring, announced on 9 January 2015. Fitch will consider the impact of the O2 UK acquisition on Hutchison's credit profile once the financing details are announced, in tandem with its analysis of the impact of the group restructuring.

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