Fitch Affirms Sun Hung Kai Properties at 'A'; Outlook Stable

Peer Review: Qatari Banks Very Strong State Support: All Fitch-rated Qatari banks have a Support Rating of ,,1, reflecting the agencys opinion that there is an extremely high probability of support from the Qatari authorities. Fitchs view is based on a strong history of support including measures to boost capital, as well as asset purchases. Support is the primary factor driving the IDRs. A change in Fitchs opinion of the willingness or the ability of the Qatari authorities to support the banking sector could lead to a change in IDRs, Support Ratings and Support Rating Floors. However, Fitch expects support for the Qatari banking system to continue. Strong Operating Environment Helps: Fitch expects the domestic economy to continue to provide a strong operating environment for Qatari banks in 2013. Fitch expects Qatars GDP growth to be a healthy 6% for 2012 and 7% for 2013. The public sector is set to drive credit growth related to the USD95bn of planned infrastructure spending between 2011 and 2016. Strong Capital... - See more at: http://www.alacrastore.com/fitch-credit-research/Peer-Review-Qatari-Banks-698637_report_frame#sthash.9EGWRVuv.dpuf http://www.alacrastore.com/fitch-credit-research/Peer-Review-Qatari-Banks-698637_report_frame#sthash.9EGWRVuv.pdf projects that form part of the governments development strategy include Lusail City (USD##bn), Doha Airport (USD##.#bn), Rail Project (USD##bn), Doha... - See more at: http://www.alacrastore.com/fitch-credit-research/Peer-Review-Qatari-Banks-698637_report_frame#sthash.9EGWRVuv.dpuf Page 51 • ... Challenges Major Projects Under Way Project Cost (USD bn) Completion Lusail City ## #### Doha Metro ## #### Airport ##.#... - See more at: http://www.alacrastore.com/fitch-credit-research/MENA-Ratings-Gap-Stabilising-747935_report_frame#sthash.xPAfEW1k.dpuf 7 instances of 'Qatar' were found in this document. Page 8 • ... tensions: Withdrawal of ambassadors from Qatar marks escalation of tensions; economic... Page 43 • ... #### #### Kuwait Saudi Arabia Qatar Oman (% GDP) www.fitchratings.com... Page 49 • ... Source: Fitch www.fitchratings.com Qatar: Infrastructure Spending Driving Rapid Growth... Page 50 • ... Driving Rapid Growth Growth Source: Qatar Statistics Authority -# # #... Page 52 • ... Expenditure (% GDP) www.fitchratings.com Qatar: Not Rated Inflation · High government... Page 53 • ... and some economic data Source: Qatar Statistics Authority -# -# -#... Page 57 • ... for #### Bahrain Kuwait Oman Qatar Saudi Arabia UAE Real GDP... - See more at: http://www.alacrastore.com/fitch-credit-research/MENA-Ratings-Gap-Stabilising-747935_report_frame#searchthisreport ======== In Hong Kong corruption trial, Thomas Chan sentenced to 6 years in jail, fined $500,000 - @SCMP_News More: Property tycoon Thomas Kwok was sentenced to 5 years and fined $500,000 for his part in Hong Kong's biggest graft trial - @SCMP_News Ex-Sun Hung Kai Properties co-chairman sentenced to five years for graft Mon, Dec 22 22:40 PM EST image 1 of 2 HONG KONG (Reuters) - Former co-chairman of Hong Kong-listed developer Sun Hung Kai Properties Ltd, Thomas Kwok, was sentenced to five years in jail and a HK$500,000 ($64,440) fine on Tuesday for corruption in the city's highest profile graft case. Billionaire Thomas Kwok, 63, was found guilty of one count of conspiracy to commit misconduct in public office. His younger brother, Raymond Kwok, also co-chairman of the city's largest developer, was cleared of all charges. Thomas Kwok, who resigned as chairman and managing director after the verdicts were delivered, will appeal against his conviction, Sun Hung Kai said in a statement last Friday. ($1 = 7.7592 Hong Kong dollars) (Reporting by Lizzie Ko and Donny Kwok; Editing by Robert Birsel) ======================== Fitch Affirms Sun Hung Kai Properties at 'A'; Outlook Stable Sun, Dec 21 23:37 PM EST (The following statement was released by the rating agency) HONG KONG, December 21 (Fitch) Fitch Ratings has affirmed Hong Kong-based Sun Hung Kai Properties Limited's (SHKP) Long-Term Issuer Default Rating (IDR) at 'A' and its Short-Term IDR at 'F1'. The Outlook is Stable. Fitch has also affirmed SHKP's senior unsecured rating at 'A' and the senior unsecured notes of Sun Hung Kai Properties (Capital Market) Ltd at 'A'. The affirmation reflects the delivery of strong and stable rental income from SHKP's well-located investment property portfolio, which provides healthy interest coverage. SHKP is focused on asset turnover, and is likely to speed up launches of its Hong Kong residential properties. Investment in the Xujiahui project in Shanghai led to an increase in SHKP's leverage, which is likely to remain at the current level for the next two to three years. Its financial management remains prudent with good liquidity. KEY RATING DRIVERS Strong Investment Property Portfolio: SHKP owns 28.7m square feet (sq ft) of gross floor area (GFA) of completed investment properties in Hong Kong, with HKD11.4bn in leasing EBITDA in the financial year ended 30 June 2014 (FY14), making it the biggest commercial landlord in Hong Kong in terms of rental income. SHKP also completed 9.5m sq ft of investment properties in first-tier cities on mainland China, mainly in Shanghai, generating leasing EBITDA of HKD2.3bn in FY14. With a continuous pipeline of investment properties in Hong Kong and mainland China, Fitch expects SHKP to maintain strong investment property EBITDA interest cover of over 4x. Xujiahui Project Raises Leverage: SHKP's net leverage - as measured by the ratio of net debt to investment portfolio value - increased from 18.6% at end-June 2013 to 23.5% at end-June 2014, after the HKD27bn land payment for the Shanghai Xujiahui Centre Project. The increased leverage still remains below Fitch's guideline of 30% at which negative rating action may be considered. In our view, SHKP's leverage is likely to remain at this level for the next two to three years. The leverage will trend down gradually after FY15-16, when the sale of Xujiahui office towers commences, with potential sales proceeds of over HKD20bn. Focus on Asset Turnover: SHKP booked HKD27bn of Hong Kong property sales in FY14, an increase of 68% from HKD16bn in FY13, as it completed a larger number of projects. At the same time, SHKP also continued to actively acquire land in Hong Kong. SHKP acquired 3m sq ft in FY14 compared with 2m sq ft in FY13. Fitch expects SHKP to speed up Hong Kong residential launches, given the strong demand for mass-market units and active land auctions by the government. Fitch believes that SHKP has strong ability to achieve quick turnover in the mass-market segment, with property sales margin remaining at a satisfactory level, despite coming under pressure. Prudent Financial Management: Fitch expects SHKP to maintain healthy interest coverage and leverage ratios given its strong track record of financial management. SHKP's recurring income EBITDA and EBIT interest cover are likely to stay above 5.2x and 7x respectively in the next two fiscal years, well above Fitch's negative rating guidelines of 4x and 6x. Net leverage (the ratio of net debt to investment portfolio value) will likely reach a peak of 26% in FY15-16, but will fall gradually, underpinned by the Xujiahui office sales. With SHKP focused on developing the Xujiahui project in the next few years, the company is not likely make another sizeable investment in China during this time. No Impact From Conviction: Co-chairman of SHKP Thomas Kwok Ping Kwong and former Hong Kong chief secretary Rafael Hui Si-yan have been found guilty of conspiracy to commit misconduct in public office by a Hong Kong court. Co-chairman Raymond Kwok Ping-luen has been cleared of all charges in the same case. Fitch continues to believe that SHKP would be able to maintain its current operations because the company's day-to-day operations are well managed by a team of professionals. RATING SENSITIVITIES Negative: Future developments that may, individually or collectively, lead to negative rating action include- - recurring EBITDA/gross interest expense sustained below 4x (FY14: 6.3x) - EBIT/gross interest expense sustained below 6x (FY14: 9.9x) - net debt /investment property asset sustained above 30% (FY14: 23.5%) - net debt / recurring EBITDA sustained above 5x (FY14: 4.1x) - further developments related to the corruption trial adversely affecting SHKP's operations and financials. These developments may include SHKP itself being charged, and its business operations facing sanctions or restrictions - or facing higher borrowing costs relative to its peers or difficulty in raising fresh funds. Positive: Fitch does not envisage any positive action, as the rating is constrained by exposure to the volatile homebuilding segment. Contact: Primary Analyst Vanessa Chan Director +852 2263 9559 Fitch (Hong Kong) Limited 2801, Two Lippo Centre 89 Queensway, Hong Kong Secondary Analyst Jenny Wenjun Huang Associate Director +852 2263 9922 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935 , Email: wailun.wan@fitchratings.com. Additional information is available at www.fitchratings.com. Applicable criteria, "Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage", dated 28 May 2014 are available at www.fitchratings.com. 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