CM Port on negative rating watch after Sri Lanka deal
ECONOMYNEXT – China Merchant Port Holdings (CMPH), has been put on negative rating watch by S&P, a rating agency, after the firm announced a deal to buy Sri Lanka’s Hambantota port.
"We placed the ratings on CreditWatch with negative implications because we expect CMPH’s debt leverage to further deteriorate from the impact of its investment in Hambantota Port in Sri Lanka," S&P said.
"The company already has little buffer in the rating currently.
CM Port has a ‘BBB+’ investment grade rating. It’s outlook has been negative from June 2016.
"If the transaction is finalized, CMPH will need to pay up to Hong Kong dollar(HK$) 8.7 billion in tranches over seven months in 2017 and 2018.
"CMPH expects to fund the investment from its internal cash. We also expect minimal cash flow contribution from the Hambantota project, given the port currently generates little cash flow and it will take years for the expansion of the Hambantota port to become fully operational and for the throughput volume to pick up.
"We believe the transaction, if funded by debt or cash on hand, is likely to materially increase CMPH’s debt level and weaken its ratio of funds from operations (FFO) to debt materially below 20%, which we believe to be the level commensurate with the current ratings."
Rating could be cut by a notch, if CM Port borrows more to buy Hambantota, S&P had said.
Hambantota is a loss making port, but CM Port is expected to use built it as part of China’s One Belt One Road project to keep maritime route access open. (Colombo/July31/2017)