On December 13, Moody's has confirmed the issuer rating of "A3" of Wheelock and Company Limited (hereinafter referred to as "Wheelock"). At the same time, Moody's also confirmed that the bonds issued by Wheelock MTN (BVI) Limited, a wholly owned subsidiary, have a "A3" backed senior unsecured rating, and the Wheelock MTN (BVI) Limited and Wheelock Finance Limited, both wholly owned subsidiaries of Wheelock (BVI) Limited (both wholly owned subsidiaries) have a provisional "P)A3" supported senior unsecured rating for the Guaranteed MTN Program. The Notes, as well as the MTN Program, are unconditionally and irrevocably guaranteed by the parent company, Wheelock.
Moody's maintains a stable outlook.
The rating action follows the recent completion of the transfer of its 50% interest in Wheelock Properties Limited ("Wheelock Properties") to World International Capital Group Limited (WIC), which is effectively owned by the Wu family. ** As a result of Wheelock Properties becoming an associate of Wheelock Properties from a former wholly-owned subsidiary. Through this transaction, Wheelock received HK$20.1 billion, which is calculated based on 50% of the net book value of Wheelock Properties' assets.
Stephanie Lau, Vice President and Senior Credit Officer at Moody's, said: "The rating confirmation and stable outlook are based on the fact that a 50% stake in Wheelock Properties will significantly reduce Wheelock's consolidated debt and significantly improve its financial position, thereby offsetting the impact of Wheelock's smaller size. The demerger of Wheelock Properties will also reduce Wheelock's exposure to real estate development, thereby improving the company's business stability. ”
Rating justification. The equity will significantly improve Wheelock's financial position as the cash proceeds will be used to repay its debt, and the deconsolidation of Wheelock Properties will effectively reduce Wheelock's debt.
Specifically, Wheelock will use HK$8.8 billion of the HK$20.1 billion cash proceeds to repay amounts due to affiliates and the remaining HK$11.3 billion to repay external debt. As at 30 June 2023, HK$11.3 billion represented approximately 17% of Wheelock's adjusted consolidated net debt (HK$65.5 billion).
Moody's expects Wheelock's adjusted net debt EBITDA to increase from 53x improvement to 20 times - 26 times. Similarly, its adjusted EBITDA interest coverage ratio will increase from 46 times to 60 times - 86 times. The above ratio will support its "A3" rating and provide ample financial cushion to address the ongoing challenges in the real estate markets in China (A1) and Hong Kong SAR (Aa3).
On the other hand, the unwinding of Wheelock Properties will reduce Wheelock's adjusted EBITDA by 20%-25% to HK$10.7 billion to HK$11 billion in 2024-2025, compared to Moody's previous figure of HK$13.3 billion to HK$14.4 billion.
After the completion of **, Wheelock's main business will be partially held: Wheelock Properties will account for 50%, Wharf Real Estate Investment Company Limited (hereinafter referred to as "Wharf Real Estate Investment", 01997HK, A2 stable) accounted for 4767%, The Wharf (Holdings) Limited, referred to as "Wharf Group", 00004HK) accounted for 6844%。
Wheelock's "A3" rating continues to reflect its solid market position and long-term track record in property development and operating investment properties in the Hong Kong SAR. The rating also reflects that the majority of the group's earnings will now be driven by its non-property development businesses, which are sizable and stable businesses that will underpin its business diversification.
The income from these non-real estate development businesses mainly comes from dividend income from the Group's investment properties in the Hong Kong SAR and the Mainland, its hotels and logistics infrastructure, as well as financial investments.
On the other hand, the rating also reflects (1) the inherent volatility of Wheelock's property development business;(2) cash losses arising from Wheelock's partial equity interests in three subsidiariesand (3) structural subordination risk given its position as a holding company, but this risk is mitigated by the company's business diversification.
Environmental, social and governance (ESG) factors have a non-material impact on Wheelock's current ratings. The company is exposed to various environmental and social risks and is rated as having a high concentration of shareholdings. However, the impact of these risks is offset by its prudent financial management.
Factors that may cause an upgrade or downgrade.
Moody's may upgrade Wheelock's rating if:(1) The credit quality of the Company's operating subsidiaries and associates continues to improve, for example through diversification of geography and asset types, without increasing their business and financial risks(2) Wheelock's financial metrics improved significantly, with its adjusted net debt EBITDA falling to 20x, while the adjusted EBITDA interest rises to 75 times more.
Moody's may downgrade WheelockRating if: Wheelock's portfolio has a significant increase in operational risk, or a significant deterioration in its financial flexibility and liquidity. Specifically, if the company's core financial metrics are weak, its adjusted net debt EBITDA is above 50x, or the adjusted EBITDA interest rate is consistently below 45 times.
Moody's will also downgrade if cash flow at the holding company level declines significantly, thereby weakening the holding company's adjusted interest coverage ratio or liquidity.
Wheelock is a privately held company that develops and invests in real estate primarily in Hong Kong SAR and Chinese mainland. Wheelock is the majority shareholder of The Wharf Group, Wharf Land and Wheelock Properties. In 2022, Wheelock's consolidated revenue was HK$37 billion.