S&P downgrades Hong Kong and China Gas to “A-“ over weaker financials

Despite this, the firm maintained its “stable” outlook.

S&P Global Ratings downgraded Hong Kong and China Gas Co. Ltd. (HKCG) to “A-“ as it expects its ratio of funds from operation to remain below 30% between 2021-2023.

“We lowered the rating because we expect HKCG's ratio of FFO to debt in the next 12-24 months will remain below 30%, the threshold for an 'A' rating,” the S&P explained.

The credit rating agency also noted that the company will continue to be weighed down by its debt-funded capital expenditure.

In line with this, S&P forecast that HKCG’s annual capital expenditure will increase to $7.6b-8.5b from 2021 to 2023 to cover its 5-year development plan in smart energy and solar projects.

On top of this, it expects that the projects will need some RMB50b (approximately HKD$60.5b) in investments until 2025; whilst dividend payments will likely deplete $7b-7.5b of cash per year in the next two to three years.

“As a result, we expect the net debt for HKCG will rise to $41b-45b over 2021-2023, from $38b in 2020.”

S&P noted HKCG could mitigate this through moderate increases in earnings from its gas businesses in Hong Kong and China.

Despite the downgrade, S&P maintained its stable rating outlook as it sees HKCG will benefit from its “strong and stable” gas business in Hong Kong as well its expected recovery in profit in mainland China amongst others.