Hutchison credit rating may face downgrade on bond issuance plan

PUBLISHED : Friday, 22 October, 2010, 12:00am
UPDATED : Friday, 22 October, 2010, 12:00am

Hutchison Whampoa's credit rating is under review for possible downgrade by Moody's Investors Service, which cited a plan by a Hutchison subsidiary to issue guaranteed perpetual capital securities.

The conglomerate has reportedly hired Goldman Sachs to sell the US dollar bond, which may be priced to yield about 6 per cent. The size has not been disclosed and the bond will be issued by a special purpose subsidiary, Hutchison Whampoa International.

A perpetual note is a security with no maturity date that is callable at the issuer's discretion, according to Bloomberg. While interest payments are mandatory, the bond's principal does not have to be paid back, meaning it can be considered equity and used as leverage with no dilution effect on shareholders' equity.

Moody's senior credit officer, Elizabeth Allen, yesterday said the agency expected to confirm Hutchison Whampoa's A3 ratings with a negative outlook 'after the completion of the perpetual capital securities issuance'.

'At that time, we also expect to confirm the rating on these securities at Baa2 with a negative outlook,' Allen said.

Moody's considered the proposed perpetual securities as 'hybrid instruments with debt and equity components'.

An A3 rating is an 'upper-medium' investment grade subject to 'low credit risk', with elements that suggest 'a susceptibility to impairment over the long term'. A Baa2 grade is Moody's second-lowest moderate credit risk rating.

The proposed new issue would be Hutchison Whampoa's second this year after its 85 per cent-owned subsidiary, Cheung Kong Infrastructure Holdings, issued US$1 billion in subordinated perpetual capital securities last month.

Standard & Poor's Ratings Services had earlier assigned its BBB rating, its lowest investment grade, to the proposed perpetual capital securities.

Fitch Ratings has assigned its similarly low BBB rating.

Cash call

A Hutchison subsidiary plans to issue perpetual capital securities

Hutchison Whampoa International may price the US dollar-denominated perpetual note to yield about: 6%