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RTNominal up13.940 +0.120 (+0.868%)

28/11/2019 17:38

CMP's exposure to Terminal Link improves ofshore cash flow

[ET Net News Agency, 28 November 2019] S&P Global Ratings said today that it expects
China Merchants Port Holdings Co. Ltd.'s (CMPort; BBB/Stable/--) cash flow profile to
improve marginally on the back of Terminal Link SAS's acquisition of an HK$7.5 billion
port portfolio, which will be funded by CMPort through the grant of a term loan and
purchase of mandatory convertible bonds (MCB) in Terminal Link.
The credit rating agency expects CMPort's investment in the additional 10 ports through
Terminal Link to provide further diversification of the company's asset portfolio and to
partially mitigate the negative impact of prolonged U.S.-China trade tension on its port
assets in southern China.
The new portfolio has ports located in Asia, Europe, the Middle East, and the
Caribbean--which should offer an additional buffer to the company's cash flow after the
completion of the acquisition as early as the first half of 2020.
Should the transaction proceed as planned, S&P expects CMPort to receive additional cash
flow in the form of loan interest and a higher dividend from Terminal Link. CMPort will
charge an interest rate of 6% per annum on the proposed HK$3.9 billion term loan.
In addition, it expects the expanded Terminal Link asset base to provide an incremental
HK$200-HK$250 million in dividend per year, based on its guarantee return framework. As of
June 2019, CMPort's average Hong Kong dollar funding cost is 3.11%-3.16%.
S&P thinks if the company funds the transaction by issuing additional debt or drawing on
its existing cash on hand, the rating could be under pressure given that the transaction
may deplete the headroom on the company's intermediate financial risk profile.
That said, S&P expects CMPort to manage its leverage to maintain its current leverage
profile. The company could sell its stake in some of its port portfolios to fund this
proposed transaction.
On 25 November 2019, CMPort entered into a memorandum of agreement to grant HK$3.9
billion of an eight-year term loan to and purchase HK$3.7 billion of an eight-year MCB
from its 49%-owned Terminal Link.
Terminal Link will use the proceeds from the term loan and MCB to acquire stakes in 10
additional ports from its 51% shareholder CMA CGM S.A. (B+/Stable/--).
Upon maturity, Terminal Link will repay the term loan as CMA CGM injects additional
capital into Terminal Link to maintain its 51% stake. In addition, CMPort will convert the
MCB into equity in Terminal Link at the maturity date. Under the arrangement, CMPort will
continue to hold 49% in Terminal Link. (KL)

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