Downgrade will not delay $2b CITIC Pacific loan
CITIC Pacific has shrugged off a downgrade of its mainland parent's debt rating, pushing ahead with a HK$2 billion syndicated loan to help fund development of the Tamar site.
The announcement that HSBC Capital would be arranging the deal came a day after Moody's Investors Service downgraded China International Trust and Investment Corp (CITIC) to Baa1 from A3 for long-term debt and prime-3 from prime-2 for short-term debt.
Yesterday, the rating agency followed up the CITIC downgrade by issuing a Baa2 rating to a previously unrated US$200 million Euro issue of floating-rate notes (FRNs) by CITIC Pacific.
CITIC Pacific deputy managing director Vernon Moore confirmed that CITIC would be proceeding with its HK$2 billion borrowing.
'I don't believe that this rating will have any effect on CITIC Pacific's ability to raise money,' Mr Moore said.
'Indeed, it's an opportunity to use the rating to raise funds in different markets in the future.' CITIC Pacific managing director Henry Fan Hung-ling said banks' initial response to the proposed loan had been 'quite good, indicating the market's support for the company'.
CITIC Pacific plans to use the proceeds from the HK$2 billion loan to redevelop the site of HMS Tamar, for which it paid HK$3.35 billion.
Bankers downplayed the downgrade of CITIC on Tuesday and Moody's issuance of a Baa2 rating for CITIC Pacific's US$200 million Euro FRN.
They said the market had been expecting a downgrade of CITIC ever since Moody's downgraded four Chinese banks in April, and had priced such a credit cut into CITIC debt in the secondary market.
Andrew Fung of HSBC Markets said: 'The market totally discounted the downgrade a long time ago.' A downgrade normally brings a higher rate of interest to reflect the perceived higher risk, but CITIC Pacific's Euro FRN actually gained from it.
The interest rate on its FRN tightened yesterday from 1.03 percentage points over the London interbank offered rate before Moody's issued the rating to only 81 basis points after.
One banker conceded that Tuesday's downgraded was significant.
'I think there's a bigger price differential between Baa1 and A3 than between A3 and A2,' said David Walker-Smith, managing director of BA Asia.
