Borrow income for IPO? Shanghai Port pays a cost with a rating cut

Shanghai International Port (Group), user of a world’s largest enclosure harbour, has had a long-term corporate credit rating cut from “AA-” to “A+” by SP Global Ratings, due to a debt-funded investment in a initial open charity of Postal Savings Bank of China, according to a statement.

The pier user will see a finances fast deteriorate, following a HK$16 billion subscription of Postal Bank’s IPO, as debt ballons to as most as 37 billion yuan from 21 billion yuan (HK$24.4 billion) during a finish of 2015, SP researcher Gloria Lu said.

Postal Bank, whose shares began trade in Hong Kong on Sep 28, lifted HK$56.63 billion (US$7.3 billion) in a world’s largest IPO in dual years. It will be enclosed in a Hang Seng Global Composite Index and a Hang Seng Composite Index, including a sub-indexes, from Oct 13.

The Postal Bank investment — that contingency be sealed adult for 6 months — will significantly break Shanghai Port’s pivotal credit metrics over a subsequent dual years, even yet it’s a long-term vital item for a association in office of business diversification, Lu said.

The investment will drag down Shanghai Port’s ratio of supports from operations (FFO) to debt to between 26 per cent and 29 per cent in a 3 years adult to 2018, from over 60 per cent during a finish of final year, SP said.

The high debt ratio is augmenting while Shanghai Port’s business is approaching to usually grow 3 per cent a year between 2016 and 2020 amid China’s mercantile slowdown, industrial constructional composition and commodity cost slumps, a rating group said.

“In a view, Shanghai Port has no serve room to boost a indebtedness following a Postal Bank investment,” SP said.

Warut Promboon, Dagong Global Credit’s arch rating officer, disagrees. The Shanghai Port investment is in fact “fairly liquid,” Promboon said.

“Shanghai Port is not immediately brief of any money to use a debt,” Promboon said. “The association is not underneath financial stress, in a view. So a investment itself does not change Shanghai Port’s financial risk profile, given that such investments can be liquidated in 6 months to repay a debt if needed.”

SP pronounced there might be unusual support from a Shanghai supervision if any financial highlight occurs, that controls 61 per cent of a pier operator, due to a critical purpose in load trade for a city and a whole Yangtze River Delta region.

It maintains a fast opinion on Shanghai Port, as a fast money upsurge is approaching over a subsequent dual years.

Shares of Shanghai Port rose 0.2 per cent on Friday to 5.12 yuan, before SP’s downgrade.

Additional stating by Liz Mak