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December 19, 2007 |
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CITIC PACIFIC: Moody's Affirms Ba1 Rating on Vessels Acquisition Moody's Investors Service has affirmed the Ba1 corporate family rating of CITIC Pacific Ltd and the Ba1 senior unsecured rating for CITIC Pacific Finance (2001) Ltd's US$450m bond. The rating outlook remains stable. The rating action follows CITIC Pacific's announcement of its plan to acquire 17 vessels at a total consideration of around HK$6.9 billion, or about 8% of consolidated assets as of June 2007. Of this total, the company itself has ordered 12 to secure suitable transportation of iron ore from its mine in Australia to its steel manufacturing facilities in China. Its joint- controlled entity, Jiangyin Ligang Electric Power Generation Company Limited, has separately ordered the remaining 5 to move coal to its power plant. "In view of its other investments, this acquisition will inevitably weaken CITIC Pacific's credit profile moderately," says Elizabeth Allen, a Moody's VP/Senior Analyst. "Nonetheless, about 40% of the total consideration will be paid in future years with the bulk over 2010-2012, when some of its property developments will start to generate more meaningful cash flow to the group and when the iron ore project is scheduled to commence operations," says Ms. Allen. "As a result, the company's near-term financials are expected to stay appropriate for its current rating," says Ms. Allen. The rating drivers for CITIC Pacific depend on the success of its key investments in property development and iron ore, and whether the groups' key businesses can deliver returns in line with expectations over the next few years. And the company is also expected to maintain its financial prudence to manage its high capex spending in the next few years. A rating upgrade in the near term is unlikely in light of the company's current investment plan. In the medium term, an upgrade could be considered if: i) there is a stabilization in and successful execution of its business strategy; and ii) it demonstrates its ability to continue generating stable recurring income, in particular in the property development and specialty steel sectors. On the other hand, downward rating pressure could evolve if: i) the company's increasing investments in property development and specialty steel segments do not generate satisfactory returns, and cannot be adequately compensated for by contributions from other businesses; or ii) there emerges a further aggressive capital investment plan. Financial indicators Moody's will look for in either situation are adjusted FFO coverage below 2.5-3x and/or adjusted FFO/debt below 10% on a consistent basis. Based in Hong Kong, CITIC Pacific Ltd -- http://www.citicpacific.com/ -- is engaged in a range of businesses in China and Hong Kong, including steel manufacturing, property development and investment, power generation, aviation, infrastructure, communications and distribution. It is 29% indirectly owned by China International Trust & Investment Corporation. On June 28, 2006, The Troubled Company Reporter-Asia Pacific reported that Standard & Poor's Ratings Services lowered its long-term corporate credit rating on CITIC Pacific Ltd to BB+ from BBB-. At the same time, it removed the rating from CreditWatch, where it had been placed with negative implications on April 7, 2006. The outlook is stable. |
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