December 23, 2024 13:52 GMT
COMMUNICATIONS: S&P Affirms CK Hutchison Telecom Group
COMMUNICATIONS
CKHGTH Baa1/A-/A-
S&P affirmed CKHGT’s A- rating and stable outlook following the approved merger of Three UK and Vodafone. They repeatedly stress the importance of the link to the CKHH group - recall the media reports over the summer that the group was considering options for CKHGT including spin-off with a view to IPO, bloc sale or country-by-country sales. The latter seems most in line with their recent strategy though the absence of CoC language in CKHGT bonds provides them flexibility while exposing bondholders to buyout-related risks.
- Pro forma net debt-to-EBITDA projected to improve to 2.6x (from 3.1x). Reminder that CKHGT retains a 49% stake in the UK MergeCo, with put and call options to divest post-merger.
- Italy’s EBITDA contribution will rise to 61% (from 51%), increasing market concentration but improving cash flow and leverage metrics.
- CKHH remains a key backer; CKHGT’s EBITDA share of CKHH expected at 25%-28% post-transaction (down from 29%).
- Rating downside pressure on weaker CKHH support (e.g. CKHH selling a majority stake, further sizeable market exits) or pro forma leverage exceeding 3x in conjunction with weaker Italian ops.
- Upside pressure on an upgrade at CKHH, debt-to-EBITDA below 2x or a strengthening in strategic importance to the CKHH group.
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