Fitch: Cheung Kong Property's Plans for Investments Abroad Offer Diversification
CKP's low leverage at end-June 2016 is in line with the agency's expectations and supports the company's rating and its plans for overseas investments. The company may further divest non-core assets in Hong Kong at the right price, which will also help to finance any new investments.
CKP's leverage, as measured by net debt/investment property value, declined to 6% at end-June 2016 from 14% at end-2015. The company continued to generate stable rental income (excluding JVs and associates) of HKD3.6bn in 1H16 from its high-grade Hong Kong investment property portfolio and strong contracted sales of HKD26.5bn from property development in Hong Kong and mainland China. The company did not acquire any new land during 1H16 due to the high land prices in Hong Kong and China, which would make it difficult to meet CKP's return objectives.
CKP is considering investment opportunities in overseas markets, which may involve property-related or new business areas, to generate recurrent income in the future. CKP has ample liquidity with HKD50.3bn cash on hand and net debt of HKD6.9bn. Fitch estimates that any investment CKP makes is not likely to put immediate pressure on its credit metrics until the total value of its new investments exceed HKD30bn. We will also have to review the quality of these investments and the operating cash flows they generate to assess their impact on the rating on CKP.