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Hong Kong credit cut poses limited impact

Hong Kong credit cut poses limited impact

S&P Global Ratings (S&P) reducing Hong Kong’s long-term issuer credit rating to AA+ from AAA will see limited impact over the medium-to-long-term on the territory’s credit issuers.

Shilpa Singhal senior credit analyst for Asia credit at NN Investment Partners said the downgrade was well flagged and Hong Kong’s economy still has many strengths and relatively high rating with a stable outlook now.

‘In the short-term, some government-owned enterprises may see downward ratings pressure as their ratings are linked to the sovereign rating, but this is expected to have limited impact on hard currency bond spreads in our view,’ she told Citywire Asia.

Hong Kong’s stock market, too, won’t be affected much for a long-term by the downgrade, added Elizabeth Soon, equity portfolio manager at PineBridge Investments.

Soon said the Special Administration Region (SAR) will be more impacted by China’s growth story and its exposure to China. However, the downgrade would make Hong Kong companies’ fund raising less easy, and it would create more difficulties for companies to issue bonds.

‘If the companies are overly leveraged, and if they raise more money from the bond market, this will lead to increase their debt burden. Therefore, there are a lot of stress on the balance sheet.'

Hong Kong’s downgrade came hours after S&P cut China’s sovereign credit rating last Thursday.

‘In our opinion, the events are connected. China and Hong Kong are closely linked by political, institutional, geographic and economic ties,’ Singhal said.

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