Brexit seen as negative for HK port operator CK Hutchison

The impact of the UK’s vote to exit from the EU, or Brexit, is widespread and among the companies to be affected is top Hong Kong conglomerate CK Hutchison Holdings (CKHH), which has port interests around the world including in the UK.

In the wake of the vote, Moody’s Investors Service said earlier this week Brexit is negative for the company but will have no impact on the company’s A3 issuer rating or stable rating outlook.

Meanwhile the much more responsive Hong Kong Exchange has already given its opinion on the company’s prospects with the stock of CKHH falling more than 8% to be the among the biggest losers among companies on the city’s benchmark stock index. CKHH boss Li Ka-shing had previously warned Britons against Brexit, saying it would be negative for the whole continent and was a strong proponent of staying in the EU.

“The UK is the key profit contributor to CKHH, but the inherent stability of its UK businesses limits any impact on its operations stemming from the macroeconomic risks following the Brexit,” said Joe Morrison, a Moody’s vice-president and senior credit officer.

Moody’s said CKHH reported that it derived from the UK about 21% of its 2015 total pro forma revenues of HKD396bn ($51bn) and 34% of its 2015 pro forma EBITDA of HKD92bn. Other analysts estimate up to 37% of EBITDA came from the UK last year.

The rating agency noted however that a large portion of this was derived from infrastructure and telecommunications businesses that have stable demand, while its ports and retail businesses in the UK are also resilient in nature. Although Moody’s noted that an overall deterioration in the macroeconomic environment may impact these businesses over the longer term.

CKHH, through Hutchison Port Holdings, owns and operates the Port of Felixstowe, Harwich International Port and London Thamesport in the UK.

Morrison added that while any potential sterling depreciation could impact CKHH’s results, with an estimated 10% drop in the GBP resulting in a 3% drop in EBITDA, its net currency exposure is manageable, as 25% of CKHH’s total debt at year-end 2015 was also denominated in sterling, which would help limit the impact on its cash flow leverage ratios.

Others however see a harsher impact of a falling GBP. Bloomberg quoted Nomura analyst Benjamin Lo as saying every time the currency moves by 1%, the company’s recurring earnings would swing 0.5% in the same direction.