[ET Net News Agency, 6 July 2020] S&P Global Ratings said today that China Merchants
Port Holdings Co. Ltd. (CMPort; BBB/Stable/--)(00144) will moderately improve its
financial buffer for its stand-alone credit profile after the announced sale of a part of
its interest in Hambantota International Port Group (Pte.) Ltd. (HIPG) in Sri Lanka.
The credit rating agency expects CMPort to use the majority of the HK$2.1 billion
proceeds to repay existing debt.
On 29 June 2020, CMPort agreed with Fujian Provincial Communication Transportation Group
Co. Ltd. (FJCT) and its subsidiary to sell a 20% effective share in HIPG; CMPort owns 85%
of HIPG. The transaction is set to settle as soon as FJCT completes relevant outbound
investment and other standard procedures.
S&P thinks CMPort can manage its leverage through this type of minority stake disposal,
even during the current reduced throughput and expected long recovery following the
COVID-19 outbreak.
CMPort will likely moderate its rising debt balance from recent large acquisitions by
selling stakes in its subsidiaries and disposing noncore assets. The company also benefits
from its status as a state-owned enterprise (SOE) to secure strategic investors for its
port projects.
In this transaction, FJCT is a port investor and operator wholly owned by Fujian
Province's State-owned Assets Supervision and Administration Commission.
In December 2019, CMPort also received about HK$1.9 billion in cash from selling its 23%
stake in TCP Participacoes S.A. (TCP) to two strategic funds. Taking into account the
above-mentioned disposals, the agency expects CMPort's ratio of funds from operations to
debt will remain 8%-9% in 2020, safely above 6%, the existing threshold for revising the
SACP downward.
Since the beginning of 2020, CMPort's leverage has been rising due to its recent
additional investments of HK$7.6 billion in Terminal Link and continued expansion projects
in Shantou Port, Haixing Port, TCP, and HIPG of HK$1.8 billion in total. By selling its
minority interests, CMPort can retain its operating cash flow while paying down some of
its acquisition debt.
S&P does not expect such disposals to undermine CMPort's business competitiveness over
the coming two years. The company is likely to remain the controlling shareholder and key
operator of its core assets, including HIPG. After the HIPG transaction, the company would
still have about 65% effective ownership in HIPG, which is under a 99-year concession
term.
The port is strategically located in Sri Lanka, connecting major shipping routes from
Asia to both Europe and North America. In 2019, HIPG handled about 540,000 tons of bulk
cargo and over 414,285 vehicles. The port remains in the development phase with a gradual
ramping up of its container facility. (KL)