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S&P Withdraws Cheung Kong Credit Rating on Lack of Access

Cheung Kong (Holdings) Ltd., controlled by billionaire Li Ka-shing, had its long-term corporate credit rating withdrawn by Standard & Poor’s, which said it hasn’t been able to “accurately assess” the credit quality of the Hong Kong developer.

The ratings company withdrew the A- “unsolicited” rating, which was based on publicly available information because it had “no access to the company management for the past three years,” S&P said in a statement yesterday.

“We can’t evaluate Cheung Kong’s liquidity accurately due to recent revisions to our liquidity criteria as the company has made material acquisitions in the past 12 months and continues to be active on the acquisition trail,” analysts Christopher Lee and Bei Fu wrote in the statement.

Hong Kong’s second-biggest builder by market value has spent more than HK$22 billion ($2.83 billion) buying land in the city this year, the company’s interim report shows. It’s seeking acquisitions in China as the country’s liquidity crunch make it a “golden time” for Cheung Kong, Executive Director Justin Chiu said in November.

“Of course if you can’t get access to management for three years, you won’t be getting a very clear picture of the company,” said Lee Wee Liat, Hong Kong-based property analyst at Samsung Securities Ltd. “They have done a bit of acquisitions lately but that didn’t materially weaken their balance sheet. They still have one of the strongest balance sheets among Hong Kong developers.”

Conservative Profile

Cheung Kong had a debt-to-common-equity ratio of 11 percent at the end of June, according to data compiled by Bloomberg. That compares with 20 percent for Sun Hung Kai Properties Ltd., the biggest developer in Hong Kong, and 15 percent for Hang Lung Properties Ltd., the third largest.

Cheung Kong’s S$730 million ($561 million) of 5.125 perpetual notes, sold to investors at par in September, were little changed today, yielding 5.098 percent compared with 5.021 percent on Sept. 23, Nomura Holdings Inc. prices show. Its S$180 million of 2.585 percent, five-year bonds due July 2016 are yielding 3.122 percent today versus 3.134 percent as of yesterday’s close, DBS Group Holdings Ltd. prices on Bloomberg show.

Cheung Kong discontinued S&P’s ratings services in 2009 because its “conservative financial profile” meant it didn’t need a rating, Wendy Tong Barnes, a spokeswoman for the company, said in a statement yesterday. The company was barred by regulation from meeting with S&P to provide them with privileged information and S&P never approached Cheung Kong for such information, Barnes said.

Bilateral Loans

“Cheung Kong’s financing is predominately done through bilateral loans,” said Andrew Lawrence, Hong Kong-based head of property research at Barclays Capital Asia Ltd. “There’s less need for Standard & Poor’s ratings because they’re done directly between the developer and the banks.”

S&P also withdrew the cnAA Greater China credit scale rating on Cheung Kong. It maintained the A- rating and stable outlook on Hutchison Whampoa Ltd., which is 49.9 percent owned by Cheung Kong, according to the statement. A- at S&P is the seventh-highest investment-grade rating, or four levels above junk, or speculative, grade.

‘Financial Flexibility’

The A- rating on Cheung Kong was supported by the company’s “strong financial flexibility,” according to the statement.

“At the time of the withdrawal, the stable outlook reflected our expectation that CKH will generate satisfactory cash flows and maintain conservative financial management over the next two years,” Lee and Fu wrote.

Cheung Kong has the equivalent of $1.78 billion in bonds and $771.6 million in loans outstanding, according to data compiled by Bloomberg. Of that, $939 million matures before the end of 2013, the data show. The company last sold bonds in November when it issued HK$300 million of 3.35 percent notes due 2012. Its S$730 million of 5.125 perpetual notes, sold to investors at par in September, have fallen to yield 5.098 percent and reached 5.021 percent on Sept. 23, Nomura prices show.

Shares Decline

The developer’s shares have declined 23 percent this year, compared with the 24 percent drop in the Hang Seng Property Index, which tracks the city’s seven biggest builders including Cheung Kong. The stock fell 0.9 percent to HK$92.55 at the close in Hong Kong today.

Home prices in Hong Kong have fallen to a near six-month low after climbing about 70 percent since the beginning of 2009, according to an index compiled by Centaline Property Agency Ltd. It’s more expensive to buy a home in the city than in London, Moscow or New York, Savills Plc said in a report in January that compared London with the other cities.

Li, 83, nicknamed “Superman” by the local media for his investing prowess, opened a plastic flower factory after World War II and began investing in Hong Kong real estate in 1967 after riots from China’s Cultural Revolution depressed prices.

Hong Kong’s richest man also was ranked the world’s 11th wealthiest by Forbes magazine in March after his net worth increased $5 billion to $26 billion. He forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted the rally in Hong Kong home prices. The Shanghai Composite Index lost 65 percent in 2008, the most among the world’s 10 biggest stock markets.

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