[ET Net News Agency, 10 June 2020] S&P Global Ratings said today that Swire Pacific
Ltd.'s (00019) financial buffer accumulated in the past two years will be fully consumed
by its participation in the bailout plan for its associate company Cathay Pacific Airways
Ltd (00293).
However, the credit rating agency believes Swire should be able to rebuild this buffer
in 2021. The rating is unchanged (A-/Stable/--). Swire's credit metrics could slide toward
or slightly above S&P's downside trigger.
Following the cash outflow of about HK$5.3 billion from the bailout, the company's
financial leverage, measured by debt to EBITDA, will likely deteriorate to 4.4x-4.6x by
end of 2020, from about 3.7x in 2019. This compares with our downgrade trigger of 4.5x,
S&P said.
It believes Swire has sufficient cash balance and undrawn banking facilities to cover
the cash outflow, which will likely take place in the second half of 2020.
The company's weakened metrics should recover in 2021, the agency thinks. This is
despite: (1) S&P's anticipation that Swire's rental earnings from its Hong Kong retail
property will decline in the next six months; and (2) difficult conditions for its marine
services business under a global recession.
S&P believes Swire will continue to benefit from its high-quality and sustainable rental
income in the long term, with improved financial standing due to noncore asset disposals
in recent years. It expects the company to uphold its disciplined financial management to
mitigate the one-off cash outflow, including through a cautious dividend policy and
reschedule of some capital investment plans.
On 9 June, Swire announced that it will support the proposed HK$39 billion
recapitalization of Cathay, led by the Hong Kong government. Swire's stake in Cathay could
reduce to 42.26% after the bailout, from the current 45%, with the government taking a
6.08% share as part of the capital injection package. S&P believes there is no shareholder
guarantee on the government's bridge loan to the Hong Kong airline. (KL)