[ET Net News Agency, 25 September 2019] S&P Global Rating said today that MTR Corp.
Ltd.'s (MTRC; AA+/Stable/A-1+)(00066) stand-alone credit profile may weaken if recent
protests continue to adversely impact ridership and retail sentiment in Hong Kong.
The Hong Kong metro operator's passenger volumes dropped 7% year-on-year in August,
based on its domestic transport segment. The Airport Express is down 10% and
cross-boundary (with China) segment down 25% on the same basis.
The credit rating agency believes these drops are due to weaker tourism in August, and
multiple instances of station closure in response to disturbances. While this decline does
not significantly affect the company's profits or cash flow in the near term, S&P believes
a sustained weakness could cause more damage to the company's performance.
Prolonged weakness in the retail sector would also weaken the MTRC's rental income. In
the first half of 2019, the metro operator derived 33% domestic recurrent EBITDA from
station commercial and retail, and 23% from property rental, with 44% from transport, the
agency noted.
A significant portion of station commercial and property rental relies on retail space
rentals, including neighborhood malls such as Ocean Walk and Citylink. Sustained weakness
in its tenants' retail revenue, resulting from potential weaker economic conditions or
consumer appetite, would reduce not only the cash flow under the revenue sharing scheme,
but also the rental reversion in the future, S&P added. (KL)