Moody's Investors Service has raised its ratings outlook for conglomerates Swire Pacific and Wharf (Holdings), claiming the commercial property rental market has stabilised. The decision comes less than a month after rival ratings agency Standard & Poor's said it might downgrade Swire Pacific due to fears over its property investment portfolio. 'After a full review of the property market, we are convinced that there has been an improvement in the local rental market,' Moody's Asia-Pacific vice-president Clara Lau said yesterday. Moody's raised the outlook for Swire's A3 and Wharf's Baa3 long-term foreign currency ratings to stable from negative. The negative outlook had been in place for both companies since October. With no major Grade-A office supply coming on stream until 2003, the agency said Swire and Wharf would see firmer rentals and lower vacancy rates. Swire had a 90 per cent average occupancy rate in its property portfolio while Wharf's occupancy was 93 per cent, with its retail portfolio almost fully let. Moody's said Swire's development business would benefit from a change in the Government's housing policy to encourage home ownership through financial incentives instead of drastic increases in public housing supply. The change in the outlook for Swire also reflected improved performance at 45 per cent-owned associate Cathay Pacific Airways. All sectors of the group's aviation business had reported growth since the second half of last year, with a strong performance in the cargo business, Moody's said. Cathay's turnaround had contributed to Swire's cash flow, although the passenger business would continue to experience price competition and fuel price fluctuations, the agency said. Moody's said Wharf's improved financial flexibility had alleviated the agency's concern over its medium-term refinancing pressure. The group had repaid HK$5.8 billion of secured debts, reducing its secured debts to 31 per cent from 47 per cent of total indebtedness. Wharf's liquidity had also improved, with HK$8 billion cash on hand, sufficient to cover debt repayment obligations until next year. The favourable equity market, successful listing of its i-Cable Communications subsidiary and an easing of liquidity in the bank lending market had improved the financial position. Analysts said the i-Cable spin-off and sales of its stock portfolio had enabled Wharf to raise its interest coverage ratio - the measure of a company's margin of safety on debt payments - to four times, its highest level since 1996. Shares in Swire and Wharf surged before the Moody's announcement was released after the market's close yesterday. Swire rose HK$3, or 5.85 per cent, to close at HK$54.25 while Wharf was up 80 HK cents, or 4.94 per cent, to close at HK$17. A spokesman for Swire, which was dismayed after S&P placed the company on CreditWatch last month, said Moody's outlook 'reflects better the underlying core strength of the company'. Although the outlook for the two companies was upgraded, their debt currency ratings remain unchanged, which means they continue to pay the same borrowing rate. Analysts said Wharf had paid the London interbank offered rate plus 90 basis points for a recent financing. Swire would be able to get a slightly lower rate. Moody's said there was no immediate plan to upgrade Hutchison Whampoa's outlook despite the fact that it had introduced two key strategic investors to its third-generation mobile-phone venture in Britain. Ms Lau said the agency had already taken the sale into account. Hutchison's outlook was changed to negative soon after it secured a third-generation licence in Britain with a bid of GBP4.38 billion (about HK$51 billion) in April. Last week, Hutchison agreed to sell 35 per cent of its British venture to NTT DoCoMo of Japan and KPN of the Netherlands.