OREANDA-NEWS. Fitch Ratings has assigned CK Hutchison Finance (16) Limited's EUR1,350m 1.25% guaranteed notes due 2023 and EUR650m 2.00% guaranteed notes due 2028 a final rating of 'A-'.

The notes are unconditionally and irrevocably guaranteed by CK Hutchison Holdings Limited (CKHH, A-/Stable) and rank pari passu with other senior unsecured borrowings of CKHH. The notes are issued mainly for refinancing purposes. The final rating follows the receipt of documents conforming to information already received, and is in line with the expected rating assigned on 6 April 2016.

KEY RATING DRIVERS

Diversified Business, Stable Cash Flow: CKHH's ratings reflect its strong business profile and geographical diversification, and stable cash flow generation from high quality ports, retail, telecommunications, infrastructure and energy businesses. No single business division accounted for more than 35% of CKHH's pro forma EBITDA in 2015. The infrastructure and ports businesses (together 48% of pro forma EBITDA in 2015) provide visible, recurring cash flows.

Capital Intensive Business: CKHH's infrastructure, ports and telecommunications businesses are capital intensive and contribute to the company's leverage profile, which constrains its ratings overall.

European Telecoms' Positive Free Cash Flow: After a number of years of cash drain, 3 Group Europe posted positive free cash flow (EBITDA after capex and license fees) in 2015 pro forma. Fitch expects the business to remain free cash positive over the medium term, with an increasing cash flow contribution.

O2 Acquisition Still Pending: CKHH's potential acquisition of O2 UK from Telefonica SA (BBB+/Stable) for GBP9.25bn and up to GBP1bn in deferred upside interest sharing payments, is awaiting regulatory clearance. The acquisition, if completed as planned, would significantly enhance CKHH's operations in the UK in terms of scale and operational efficiencies.

Stable Financial Profile: We expect CKHH's financial profile to remain stable, even assuming a completion of the O2 acquisition, with FFO-adjusted net leverage remaining below 4.0x in 2016-2018.

Strong Liquidity; Access to Funding: CKHH's robust liquidity profile is supported by HKD131bn of reported cash and cash equivalents at end-2015. Fitch expects the company to continue to have strong access to capital markets for its refinancing needs.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:
- Moderate Fitch adjusted revenue growth of around 10% in 2016
- Fitch adjusted EBITDA margins of around 20% in 2016
- Acquisition of O2 UK completed in 2016
- Dividend payout ratio of 30%-40% in 2016
- No disposals

RATING SENSITIVITIES

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- FFO-adjusted net leverage exceeding 4.0x on a sustained basis
- Materially negative free cash flow after acquisitions and disposals
- Significant change in business mix and capital structure management that are adverse to its credit risk profile
- A weakening quality or decreased quantity of recurring cash flows

No positive rating action is expected in the near term due to the business and financial profile of CKHH