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Moody's affirms Kowloon-Canton
Moody's Investors Service has affirmed Hong Kong-based Kowloon-Canton Railway Corp.'s Aa3 foreign- and local-currency senior unsecured debt ratings and A1 foreign- and Aa3 local-currency issuer ratings. The outlook is stable.
The affirmation follows the Hong Kong Special Administrative Region government's announcement that it has signed a non-binding memorandum of understanding with MTR Corp. Ltd. that sets out the terms for the proposed merger of the operations of Kowloon-Canton and MTR and the acquisition of a property package. The proposed transaction is subject to the approvals of the Legislative Council and MTR's minority shareholders, which are expected to take at least one year.
Under the proposed transaction, MTR will make an upfront payment of HK$4.25 billion to Kowloon-Canton for a service concession lasting for 50 years and for certain rail assets, the agency said. It will also pay HK$7.79 billion to acquire from Kowloon-Canton a property package that includes development rights, investment properties and property management rights. Over the life of the service concession, MTR will pay an annual fixed payment of HK$750 million, plus an annual variable payment based on revenue generated from Kowloon-Canton rail and rail-related operations starting in year four after the merger of the operations.
Moody's said that based on available information, the transaction would materially alter the business and financial profiles of Kowloon-Canton and may adversely affect its baseline credit assessment. However, given the lack of detail on the capital structure and ongoing funding of Kowloon-Canton after the transaction, the agency said further assessment is needed.
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