OREANDA-NEWS. Fitch Ratings has upgraded Cheung Kong Infrastructure Holdings Limited's (CKI) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating to 'A-' from 'BBB+'. The Outlook is Stable

The upgrade reflects the incorporation of a one-notch uplift to CKI's standalone rating of 'BBB+' for parent support, which reflects moderate-to-strong operational and strategic ties between CKI and its parent, CK Hutchison Holdings Limited (CKHH, A-/Stable). This follows the re-organisation of Hutchison Whampoa Limited (Hutchison Whampoa) - the merging of Hutchison Whampoa's businesses with CKHH and the spin-off of its property business. In Fitch's view, the strategic importance of CKHH's infrastructure business - of which CKI is a key part - to its overall business has increased after the re-organisation.

CKHH's shareholding in CKI will reduce to 49.19% from 75.67% if CKI completes the all-share offer it announced on 8 September 2015 to buy out minorities in 38.87%-owned Power Asset Holdings Ltd (PAH). Fitch expects CKHH to retain majority and effective control of CKI, and the operational and strategic ties between CKI and CKHH to remain unchanged.

KEY RATING DRIVERS

Stable Income Drives Ratings: CKI's ratings are underpinned by the company's stable and predictable income stream from a diversified portfolio of regulated utilities and infrastructure investments. Cash flow contributions from regulated utility assets accounted for the majority of CKI's 2014 cash inflows. Key contributors include PAH, which has utility investments in Europe, Asia and Australia; UK Power Networks Holdings Ltd, Northumbrian Water Group and Northern Gas in the UK; and SA Power Networks, Powercor, Citipower and Australian Gas Networks Limited in Australia.

Structural Subordination Risk: CKI faces structural subordination risk as FFO is largely derived from upstream dividends and interest received on shareholder loans. However, CKI invests with partners - typically PAH or other affiliates in the Cheung Kong group - which give it strong control of its major investments.

Solid Portfolio Credit Quality: Fitch views the aggregated portfolio of CKI's dividends in the high 'BBB' category, taking into account structural subordination issues and a strong CKI management team.

Prudent Approach to Acquisitions: CKI is prudent in its approach to acquisitions to ensure an adequate and immediate return. Acquisitions have typically been in the regulated utilities sector, in countries with stable, mature and supportive regulatory frameworks. CKI also has a track record of frequent equity issuance in order to maintain a sound capital structure.

Potential CKI, PAH Merger: CKI's all-share offer to buy out the minorities in PAH, and the merging of the two businesses, if completed, would be credit positive to CKI's standalone rating of 'BBB+'. The combined entity will be larger and more diversified in regulated utilities and infrastructure segments, contributing to a stronger business profile. The financial profile will benefit from PAH's large cash position (1H15: HKD68bn) of which around HKD50bn could fund acquisitions, after a special dividend of HKD5 per share is paid out on the acquisition closing. The transaction is subject to approval by independent shareholders, with expected completion by March 2016. We would look to change our Rating Sensitivities if the transaction is completed.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Moderate growth in cash inflow from associates/JVs and investments in 2015-17
- Dividend growth consistent with historical levels

RATING SENSITIVITIES

Negative: Future developments that may collectively or individually lead to negative rating actions include:
- A weakening of strategic and or operational ties between CKI and its parent, CKHH

For CKI's standalone rating:
- FFO interest cover below 4.5x on a sustained basis (2014: 5.0x);
- Weaker quality of cash inflow from investments due to significant acquisitions in the non-regulated sector that undermine the overall credit profile of invested entities

Positive: Future developments that may collectively or individually lead to positive rating actions include:
- A further strengthening of strategic and or operational ties between CKI and its parent, CKHH

For CKI's standalone ratings:
- FFO interest cover of above 5x on a sustained basis; and
- Significantly stronger quality of cash inflow

However, CKI's ratings would be capped at that of its parent, CKHH.

FULL LIST OF RATING ACTIONS

Cheung Kong Infrastructure Holdings Limited
Long-Term IDR upgraded to 'A-' from 'BBB+'; Outlook Stable
Senior unsecured rating upgraded to 'A-' from 'BBB+'.