[ET Net News Agency, 31 August 2018] S&P Global Ratings today revised the rating
outlook on The Hong Kong and China Gas Co. Ltd. (HKCG)(00003) to negative from stable.
At the same time, the credit raging agency affirmed the 'A+' long-term issuer credit
rating on HKCG. It also affirmed its 'A+' issue rating on the company's outstanding notes,
and our 'A-' rating on the company's perpetual subordinated capital securities.
S&P revised the outlook because it expects a slow improvement in HKCG's cash flow
leverage may not be sufficient to cushion against the company's increasing business risks.
It estimated the company's significant capital spending and dividend payout will
continue to overtake its operating cash flow in the next 24 months.
Increasing proportions of HKCG's cash flows are generated from the mainland gas
business, which is subject to higher pass-through and regulatory risks compared with the
Hong Kong gas business.
Although China's regulatory framework is evolving to be more transparent, it still lacks
a track record of predictable and stable returns for city gas operators. Weaker
profitability of HKCG and peers' gas business in the mainland in 2017 demonstrates
regulatory risks.
The dollar margin on HKCG's mainland gas segment was compressed as a result of gas
shortages in the winter season, leading to feed stock price hikes which HKCG was not able
to fully pass through to end-users. (KL)