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Moody's assigns Baa1 rating to CMPH guaranteed dollar bonds
Rating reflects its standalone credit profile, as well as, expectation that the company will continue to receive support from China Merchants Group if needed
Michael Marray 1 Aug 2018
Moody's Investors Service has assigned a Baa1 senior unsecured rating to the proposed senior unsecured US Dollar notes to be issued by CMHI Finance (BVI) Co., Ltd, a wholly owned subsidiary of China Merchants Port Holdings Company Limited's (CMPH). The notes will be unconditionally and irrevocably guaranteed by CMPH.
The proceeds from the proposed notes will be used for general corporate purposes, including to repay existing debt related to CMPH's announced acquisitions.
"The proposed issuance will support CMPH's liquidity profile and provide long-term funding for its announced acquisitions because the company will use the proceeds mainly to refinance existing debt associated with the acquisitions," said Ralph Ng, a Moody's Assistant Vice President and Analyst.
CMPH has announced several major acquisitions for 2017-2018, including its investments in Hambantota Port in Sri Lanka (HKD8.7 billion), Shantou Port Group (HKD6.1 billion), TCP in Brazil (HKD7.2 billion), and the Port of Newcastle in Australia (HKD3.8 billion).
Moody’s said that the Baa1 senior unsecured rating on the proposed notes is consistent with CMPH's Baa1 issuer rating, reflecting that the notes are unconditionally and irrevocably guaranteed by CMPH.
CMPH's Baa1 issuer rating reflects its standalone credit profile and a three-notch uplift based on Moody's expectation that the company will continue to receive a high likelihood of support from China Merchants  Group Limited (CMG) when in need, given its growing importance as CMG's core platform for investing, developing and operating the port business.
Moody's believes CMPH will continue to expand its footprint overseas, driven by the Belt and Road strategy as well as its business strategies.
The stable rating outlook reflects Moody's expectation that CMPH's standalone credit profile as well as the willingness and ability of CMG to provide support will remain stable.
Moody's sees limited rating upgrade potential, given the company's expansive growth strategy, and Moody's expectation that CMPH's financial leverage will remain elevated at the current rating level. However, the rating could be upgraded over time if the company improves ist standalone credit profile significantly, and the regulatory framework for the port industry improves substantially.
Downward rating pressure could emerge if there is a substantial further deterioration in CMPH's profitability or its adjusted debt position, and if CMPH engages in further material debt-funded acquisitions, and thereis a material increase in dividend payments to the shareholders.
CMPH is listed on the Hong Kong Stock Exchange. It has port investments in Australia, Brazil, China, Sri Lanka, Togo, Djibouti, Nigeria and Turkey.
On June 30 2018, CMPH was around 62% controlled indirectly by China Merchants Group Limited, a conglomerate wholly owned by the State-owned Assets Supervision and Administration Commission of the State Council of China.
In February of this year CMPH entered into an acquisition agreement under which it acquired a 50% stake in Australia’s Port of Newcastle. The remaining 50% is held by TIF Investment Trust, an independent third party. CMPH said at the time that the acquisition of Port of Newcastle represents a first step for it to invest in the Oceania region. Last week Port of Newcastle completed a debt refinancing.
 

    

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