Fitch ups Kowloon-Canton outlook to stable

Fitch Ratings said it revised the outlook on Hong Kong-based Kowloon-Canton Railway Corp.'s senior unsecured local currency rating to stable from negative. Fitch affirmed Kowloon-Canton's ratings, including the AA- senior unsecured foreign currency debt rating, F1+ short-term foreign currency debt rating and the AA senior unsecured local currency debt rating.

The outlook revision reflects Fitch's expectations that Kowloon-Canton's operating results will improve over the next 18 to 24 months, following the improvement of passenger traffic on its West Rail line, and that there would be no material change in the on-going support from the Hong Kong Special Administrative Region.

Kowloon-Canton has a close relationship with the government, underpinned by its 100% government ownership and its importance to Hong Kong's public transit regime.

Fitch acknowledges that Kowloon-Canton has a sound operating profile, but the company's credit strength is tempered by its massive expansion program and, to a lesser extent, pressure on profit margins.

The proposed merger with MTR Corp. Ltd. (AA-/stable/F1+), which is still under discussion, has not been factored into the ratings as the eventual structure is not yet known. That said, Fitch said it expects government support for the merged entity to be no weaker than its current form

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