Hong Kong Telecommunication Limited (“HKT”) announced on 11 January 2021 that it intends to issue a 10 year USD senior unsecured notes at an initial price guidance (“IPG”) of 10Y UST + 155 basis points (“bps”).
The tenor of the notes will be 10 years and the use of proceeds from this new issue will be used for general corporate purposes, including repayment of existing indebtedness.
The new issue will be issued by HKT Capital No.6 Limited and guaranteed by HKT Group Holdings Limited and HKT Limited. The guarantor is rated ‘Baa2’ (stable) and ‘BBB’ (stable) by Moody’s and S&P respectively, whilst the new issue is also expected to be rated ‘Baa2’ by Moody’s and ‘BBB’ by S&P.
HKT is a subsidiary of PCCW Limited and PCCW Limited has approximately 52% of indirect shareholding of HKT. HKT is listed on the HKSE as a share stapled units with HKT Trust, under the ticker 6823.HK. It has a market capitalisation of approximately USD 10.3b.
For the 6 months results ended 30 June 2021 (“1H21”), revenue increased by 7% year-on-year (“YoY”) from USD 1,872m to USD 2,006m. EBITDA for the company improved 3% YoY and overall EBITDA margin remained relatively stable at 37%.
As of 30 June 2021, the company had 3.26 million customers, and the customer churn rate for 1H21 was low at 0.7%, which was lower as compared to 1H20 of 0.9%. The average revenue per customer increased by 3.3% year-on-year to HKD 187.
For 1H21, gross debt for HKT was USD 5,555m, an increase of 1.96% YoY. Leverage (taken as gross debt to EBITDA) was 3.41x. HKT had USD 276m in cash balances for 1H21 and undrawn facilities of USD 1,014m. For 2022, HKT has only USD 103m of bank loans expiring and the average debt maturity profile was ~4 years. We think the group’s liquidity is sufficient to repay its short term debt obligations.
The new issue has an initial price guidance of 10Y UST + 155bps (reference yield: 3.30%). We think that the new issue is fairly priced at its IPG when compared to other issuers of similar credit rating (‘Baa2’ by Moody’s / ‘BBB’ by S&P). This new issue is suitable for stable income seekers who want a stable yield for a long tenor of 10 years. Investors should note that its final price guidance may not be as high as its initial price guidance.
Declaration: For
specific disclosure, at the time of publication of this report, IFPL (via its
connected and associated entities) holds a NIL position and the analyst who
produced this report holds a NIL position in the abovementioned securities.
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