OREANDA-NEWS. April 28, 2016. Fitch Ratings says that Hong Kong-based Cheung Kong Infrastructure Holdings Limited's (CKI; A-/Stable) participation in a joint venture planning to acquire a 65% stake in the oil pipeline and storage assets of Husky Energy Inc. (Husky) will have no immediate impact on its ratings.

CKI's share of the acquisition would amount to around CAD288m (around HKD1.76bn), which we believe CKI would fund with a mix of debt and available cash on hand. We expect CKI to have adequate headroom under its current rating to accommodate the acquisition, and we estimate FFO interest coverage will remain comfortably above 4.5x (7x at end-2015), should the acquisition complete as expected. Fitch's guidelines for a negative rating action on CKI include FFO interest coverage below 4.5x on a sustained basis.

CKI, in joint venture with Power Asset Holdings (PAH, 38.9% owned by CKI), is set to acquire 65% of the oil pipeline and storage assets of Canada-based Husky. The assets will be held under a new limited partnership, Husky Midstream Limited Partnership, in which CKI will take around 16.3%, PAH 48.7% and Husky around 35%. Husky will continue to manage the assets. PAH's share in the acquisition would be CAD865m. Following the divestment of a 50.1% holding in Hong Kong Electric Company Limited in 2014 and a further 16.5% in 2015, PAH's cash balance has increased to HKD68bn at end-2015.

The oil pipeline assets include some 1,900km of oil pipeline in the Lloydminster region, in Alberta and Saskatchewan, and the storage capacity comprises 4.1 million barrels at Hardisty (Alberta) and Lloydminster. The transaction, which is subject to regulatory approval, is expected to close by 3Q16. Profit before taxation and extraordinary items of the oil pipeline and gas storage assets amounted to around CAD100m at end-2015. We expect the acquired assets to yield relatively stable dividends to CKI.

CKI's parent, CK Hutchison Holdings Limited (CKHH, A-/Stable) owns 40.2% of Husky, while the family trust of Li Ka-shing, who controls CKHH, holds around 29.3%.