Moody's Investors Service said recently in a report that the coronavirus outbreak will further weaken the revenues of rated Hong Kong (Aa3 stable) companies with significant retail exposure while the ultimate impact on credit quality will be limited if the disruptions do not continue beyond the next three to six months.
"Most of our rated companies, in particular 10 property companies and the conglomerate Swire Pacific, have significant contributions from stable businesses such as office investment properties, in addition to boasting solid liquidity, healthy financial metrics and adequate financial buffers at their respective rating levels," said Stephanie Lau, a Moody's Vice President.
"And for the property companies, even if we assume that Hong Kong retail sales decline by 20%-25% during the first half of 2020, weighted average EBITDA is unlikely to decline more than 5%-10% in their respective 2020 fiscal years compared with a year earlier," she noted
Lifestyle International Holdings Limited (Ba1 stable) is likely to report a significant drop in revenue during the first half of 2020, given its two Sogo department stores are in major shopping districts frequented by Chinese tourists, Moody’s said.
Swire Pacific Limited (A3 stable) is also significantly exposed through its 45%-owned affiliate Cathay Pacific, beverage businesses in mainland China, and retail property operations in both Hong Kong and mainland China, the rating agency observed.
However, both companies benefit from solid liquidity and other mitigants that will help contain debt growth, Moody’s pointed out, adding that Swire Pacific for instance has reduced its debt through asset sales at its subsidiary Swire Properties Limited (A2 stable).