ASIA : Moody's Investors Service has affirmed the A3 debt ratings for Hutchison Whampoa Limited (Hutchison) (0013.HK) and its guaranteed finance subsidiaries in response to the news that attributable peak funding for its 3G operations may rise by approximately USD2.4 billion as a result of delays in the deliveries of handsets.

The rating outlook remains negative.

The affirmation reflects Moody's opinion that the potential rise in peak funding for its 3G operations will not exert any imminent financial pressure on Hutchison as funding for the additional requirement, should it arise, will be comfortably covered by the company's liquidity reserve of approximately USD19 billion on hand as well as the approximately USD4 billion in committed undrawn 3G project bank loans.

The affirmation further reflects the rating agency's expectation that H3GUK will continue to comply with its loan covenants, even though subscriber numbers and revenues are falling short of budget because of the handsets delay.

Moody's also takes comfort that Hutchison has pro-actively termed out some of its debts, helping lower refinancing risks during the rating horizon. Moody's is further of the view that Hutchison has significant financial flexibility to deal with the refinancing, if appropriate, of any of the current loans, including the 3G project loans.

Moody's says that handsets shortage has constrained Hutchison's ability to secure subscribers and generate revenue. A prolonged delay in deliveries would likely mean that the achievement of breakeven for EBITDA would have to be significantly extended beyond 2005. Furthermore, a drop would occur in the likelihood of the company's credit metrics returning -- during the rating horizon -- to a level which is more appropriate for its current rating.

Moody's expects the handsets shortage to be resolved no later than end-1Q2004. Failing that, its ratings will be pressured since this will significantly impact the 3G business plan for 2004 and considerably increase the likelihood of a material extension of the EBITDA breakeven point for 3G. The negative outlook reflects the prospective deterioration in Hutchison's cash flow measures due to the peak funding requirements and start-up losses associated with 3G, although -- as indicated -- the company's large liquidity reserve significantly mitigates the near-term financial risks.

Moody's notes that Hutchison's additional capital injection and the recent buyback of KPN's 15% stake in H3GUK has raised the company's overall exposure to 3G businesses. In this context, the agency will closely monitor revenues and earnings growth. Any developments indicating possible significant revenue shortfalls or cost overruns will pressure the ratings. Furthermore, rating pressure will emerge in the event of any incidents which have the potential to further undermine Hutchison's liquidity reserve.

Moody's says the A3 rating continues to reflect Hutchison's well-diversified portfolio of businesses and the strong competitive positions held by its major businesses in their respective markets. In particular, the ports, infrastructure and property divisions generate predictable recurring operating cash flows. The rating further reflects management's disciplined approach to managing financial risk, including its long-term committed strategy of retaining large liquidity reserves for business development initiatives. At the same time, these credit strengths are tempered by Hutchison's willingness to take large calculated risks although they are always conducted in a well thought-out manner.

Additionally, management has a track record for successfully executing business strategies and harvesting profits at opportune moments. The rating also considers Hutchison's low debt coverage ratios, the challenges facing its significant 3G investments, and finally structural subordination, to which its creditors is subject, based on the company's corporate structure.

Hutchison Whampoa Limited, headquartered in Hong Kong, is engaged in five core businesses -- ports and related services, telecommunications, energy & infrastructure, retail & manufacturing, and property & hotels. In addition to its 87% ownership of Hong Kong International Terminals, Hutchison is a leading port operator in the United Kingdom, operating the Felixstowe, Thamesport and Harwich ports. It indirectly owns 33% of listed Hong Kong Electric Holdings Limited. Hutchison is engaged in the development of properties, both in Hong Kong and China, and holds a portfolio of good quality investment properties in Hong Kong. It has an 85% stake in listed Cheung Kong Infrastructure Holdings Limited.