Hutchison debt rating at risk of downgrade

June 22, 2004

Moody's Investors Service could downgrade Hutchison Whampoa's debt rating if its 3G mobile phone business fails to achieve subscriber and ARPU targets.

Hutchison's current A3 is at risk of being lowered if 3G investments is increased by more than 20% or if the company fails to break even in Ebitda (earnings before interest, taxes, depreciation and amortisation) by the end of next year.

The Hong Kong conglomerate has budgeted 18.2 billion euros for its global 3G operation, which has so far launched commercial services in seven countries.

Canning Fok, managing director at Hutchison, has always insisted the company would break even in Ebitda by end 2005.

The credit ratings agency also warned the emergence of 3G services from rival operators could hurt Hutchison. A number of operators including Vodafone recently started limited 3G services in several countries across Europe. Competition could affect Hutchison reaching subscriber targets and lead to rising customer acquisition costs.

Moody's also said Hutchison's 'negative' outlook could change to 'stable' in the next six months, if its current 3G subscriber and ARPU growth rates continue to be sustainable, and if it could reach its Ebitda break even target by next year.

The ratings agency foresees the company's established business to maintain stable growth and 3G performance is the major factor that will affect Hutchison's Ebit (earnings before interest and taxes) and operating cash flow over the next one to two years.