Concerns about conglomerate Wharf (Holdings)' ability to repay debts have intensified after Standard & Poor's (S&P) cut its credit rating to one notch above 'junk' status. The United States-based credit rating agency downgraded the rating to BBB from BBB-plus yesterday to reflect 'concerns over Wharf's increased financial risks in the local operating environment'. S&P also placed Wharf's credit outlook on 'negative', saying the conglomerate's credit quality was deteriorating and its rating could slip further. However, it said the ratings assumed Wharf 'will successfully meet further refinancing needs in the near term'. 'Wharf's rating could be lowered if the company is unable to demonstrate sustained improvement in profitability and interest coverage,' it said. Last night, Wharf said: 'Standard & Poor's assumption that Wharf will successfully meet further refinancing needs in the near future is correct. 'Wharf's 1999 refinancing is already completed and its 2000 refinancing needs . . . [are] substantially secured.' It also said that outstanding warrants - which are due for conversion at the end of the year - would raise about $2 billion if fully converted. However, S&P said there were worries about the quality of Wharf's free cash flow to pay off debts, as interest coverage from gross earnings - at 2.65 times last year - and its funds from operations to debt - at 13.2 per cent - were 'low for the current rating'. 'Wharf is expected to achieve a gradual improvement in its cash flow protection measures, but these measures will remain relatively weak,' it said. S&P said it also feared that a continuing weak property market meant free operating cash flow after scheduled capital expenditures over the next two years would not allow significant debt reduction or improvement in its financial profile. On Tuesday, Wharf agreed to pay the Government a $1.8 billion land-use conversion premium so that it could begin construction of a residential property project in Sham Tseng. S&P - which rated Wharf's credit at A-minus a year ago - is the second rating agency to slash the company's creditworthiness. Wharf, which has investments in property, ports, infrastructure and telecommunications, was downgraded by Moody's Investor Service to Baa3 last June. A slip into junk status could have devastating implications for Wharf as many lenders are bound by regulatory and investor requirements that allow them only to lend to companies rated at investment grade or above, which could lead to questions about the status of present loans.