MTR Corp and Kowloon-Canton Railway Corp will for the first time have higher credit ratings than the Hong Kong government after an upgrade by Moody's Investors Service yesterday.
The upgrade of their respective long-term foreign currency ratings to Aa3 from A1 was due to a change in methodology used to rate government-related issuers that was first announced in April. The new system formally incorporates the expected level of support from the government to prevent a default, which in the case of Hong Kong's two railway operators is considered high.
At present, Moody's rates Hong Kong's domestic currency debt Aa3, but its foreign currency debt is rated A1 with a stable outlook as it is seen as limited by the relationship with China. That link should not affect the credit worthiness of government-related issuers, a Moody's analyst said.
The domestic currency ratings of MTR and KCRC were affirmed at Aa3.
Under the new system, the ratings agency will also assess each issuer on the basis of its baseline credit risk, the default risk of the supporting government and the dependence between the government and the issuer.
The rating agency said 21 Asian quasi-sovereigns had been upgraded due to the system change while 39 had been affirmed at existing levels.