[ET Net News Agency, 21 May 2018] S&P Global Ratings today affirmed its 'A-' long-term
issuer credit rating on Swire Pacific Ltd (00019). The outlook is negative.
At the same time, the credit rating agency affirmed its 'A-' long-term issue rating on
the senior unsecured notes that the Hong Kong-based conglomerate guarantees.
S&P affirmed its rating based on the agency's view that Swire Pacific's earnings have
bottomed out and will likely improve in the next one to two years.
In addition, it expects the company to improve its capital structure and leverage by
disposing of its non-core assets to support its high capital expenditure (capex) in the
property and beverage segments.
These factors should gradually lower Swire Pacific's currently high leverage over the
next couple of years. It thinks the cyclical aviation and marine services sectors are
showing signs of a turnaround.
This bodes particularly for Swire Pacific's affiliate, Cathay Pacific Airways Ltd.
(CX)(00293), where yields are improving and costs are coming down. S&P therefore expects
dividend income from CX to resume in 2018 and progressively increase over the next two
years.
That said, the aviation industry's highly competitive and cyclical nature may pose
downside risk to S&P's base case. The agency expects Swire Pacific's marine services
segment to continue generating operating losses in the next two years.
But the segment should return to profitability by 2020 as the overcapacity in offshore
services reduces over time and oil companies increase exploration activities. Swire
Pacific's property segment will continue its strong performance, S&P said.
The group's income from investment properties will likely increase materially in 2019
and 2020, with high visibility, given the good preleasing activities in its office
redevelopment in Quarry Bay. (KL)