HONG KONG: Standard & Poor's Ratings Services today assigned its 'A-' long-term issue rating and 'cnAA' Greater China credit scale rating to the US$2 billion Euro medium-term note (EMTN) program guaranteed by Cheung Kong Infrastructure Holdings Ltd. (CKI; A-/Stable/--; cnAA). Cheung Kong Infrastructure Finance (BVI)Ltd. will issue the notes. The rating on this EMTN program is the same as the corporate credit rating on CKI.
The ratings on the EMTN program and CKI reflect our view of the benefits the company derives as a core subsidiary of the wider Cheung Kong Group, its stable cash flow, and its strong business risk profile. CKI invests primarily in regulated utilities and infrastructure assets with predictable cash flows. Most of the company's assets are located in developed countries with stable regulatory regimes. Nevertheless, its above-average appetite for acquisitions and the subordinated nature of its cash flow moderate these strengths.
CKI's recent acquisition of Northumbrian Water Ltd. (BBB+/Stable/--) is consistent with the company's stated investment strategy and has further diversified its business portfolio. We believe Northumbrian Water and UK Power Networks Holdings Ltd. (BBB-/Stable/--), which CKI acquired in October 2010, are likely to contribute 25%-30% to CKI's cash flow from 2012.
CKI's balance sheet leverage has increased significantly because the company primarily used debt to fund its recent large investments in the U.K. The addition of GBP600 million in new facilities to finance the acquisition of Northumbrian Water has put significant pressure on CKI's financial headroom at the current rating level. We expect the company's management to carefully balance its funding and balance sheet leverage when considering new investments. We analyze CKI's adjusted credit metrics at both the corporate and the group level; we consolidate the company's key investments in associates when analyzing group-level metrics.
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