Hutchison Whampoa LTD • HWL was established in 1977 as a result of merger between Hong Kong and Whampoa Dock

Company Limited (HWD) and Hutchison International Limited.When HWL ran into trouble near 1978, The Hong Kong and Shanghai Banking Corporation came to rescue and took a 22% stake in the company. In 1979, bank sold his stake in Hutchison to Cheung Kong for HK$639 million. A Fortune 500 company and one of the largest companies listed on the Hong Kong Stock Exchange. HWL is a leading corporation committed to innovation and technology with business spanning the globe . HWL reports turnover of approx HKD 326 billion (USD 42 billion) at year end 2010 . HWL reports turnover for 6 months till June 2011 is HKD 187 billion (USD 24 billion).HWL currently operates in 54 countries and employs around 230,000 staff worldwide.

HWL has 5 core Business : 1. Ports & Related Services 2. Property Development & Holding 3. Retail 4. Energy & Infrastructure . 5. Telecommunication . Ports & Related Services :-Hutchison Port Holdings (HPH) operates across Europe, the Americas, Asia, the Middle East and Africa. It operates in five of the seven busiest container ports in the world, handling 13% of the world’s container traffic. Hutchison group owned HIT which was worlds largest privately owned & operated container terminal in throughput .Hutchison group owned and operated at Felixstowe in UK. Felixstowe is the largest port in UK and 4th largest in Europe . HIT operated ports in Shanghai , Yantian , Gaolan , Shantou and Xiamen . Hutchison was awarded rights to operate 2 operates in Panama . Property Development & Holding :-HWL has developed residential and commercial properties for sale and lease. Its portfolio included some of Hong Kong’s largest private housing projects such Aberdeen centre, provident centre ,Whampoa garden ,Laguna city etc. Together with Cheung Kong Holdings, HWL has set up a joint-venture company, Harbor Plaza Hotel Management(International) Limited to operate and manage hotels under the portfolio of the Hutchison Property division. The group also had an interest in Sheraton Hong Kong Hotel . Retail :-A S Watson, Hutchison’s retail subsidiary, operated 3 of Asia’s retails chains i.e. Park N Shop Supermarkets, Watson’s personal Care Stores and Fortress. It was one of the best known trading names in Asia with 500 retail outlets in countries like China, Hong Kong, Macau, Taiwan, Singapore, Malaysia, Thailand , Indonesia and South Korea .The distribution

medicines etc. The company provides wide spectrum of services including : personal communication network . Capital Structure Capital structure is a business finance term that describes the proportion of a company's capital. the sole electricity supplier to Hong Kong Island and also has an interest in 9 power plant projects in mainland China . cellular telephone network and service provision . HWL’s infrastructure arm. the capital structure varies from financial structure which includes short-term debt and accounts payable.Watsons Personal Care Stores had 380 outlets offered a range of 25000 products from more than 20 countries including cosmetics .7 million subscriber base including in that of Hong Kong. common stocks.India etc. Fortress was a leading retailer of electronic and electrical appliances with a 25 % market share. Macau. or operating money. Sri lanka . is a diversified infrastructure company with businesses in transportation. . that is obtained through debt and equity. satellite systems and services and radio broadcasting. Energy and Infrastructure :-Cheung Kong Infrastructure (CKI). paging. infrastructure materials. Malaysia. fashion items . energy. Thailand . However. Indonesia.Park N Shop operated 225 stores in North & South China.operations made the group one of the leading food and beverages retailers in Hong Kong . Mainly the capital structure consists of    Equity Debt Hybrid (Mixture of Debt + Equity) Capital Structure may include long-term debt. Hutchison was one of the largest mobile telephone operators in Hong Kong with over 550000 subscribers Hutchison had a 49% stake in Orange plc in UK which operated the orange network . HWL has an interest in Hong Kong Electric Holdings (HEH). fixed line services . trunked mobile radio . Hutchison is also a major shareholder of Husky Oils one of Canada’s largest privately owned integrated oil and gas companies. Australia. Hong Kong and had about 33 % share of Hong Kong market .-HTIL has total of 3. The key division in capital structure is between debt and equity. water plants and related operations. Telecommunication . preferred stock and retained earnings and thus acts as the permanent long-term financing of the company.

Equity Capital: Equity Capital refers to money put up and owned by the shareholders. Convertible Debenture is similar to a common bonds. Features of a Capital Structure . For example: A speculative mining company that is looking for silver in a remote region of Africa may require a much higher return on equity to get investors to purchase the stock than a firm such as Procter & Gamble. Common stock is the most widely used form of equity 2. if not decades. which sells everything from toothpaste and shampoo to detergent and beauty products. Convertible debenture has been very popular during the good economic because the buyers expect that the profitable returns from converted stock will be much than the interest returns from common bonds. while paying interest only in the meantime. Broadly equity capital consists of two types:   Contributed capital which is the money that was originally invested in the business in exchange for shares of stock or ownership. The difference is that the preferred shareholders are entitled to have repayment of capital before the common shareholders. Some consider the cost of equity capital to be a very expensive type of capital a company can use. For example: Companies like General Electric and Walmart may issue commercial papers which it may use to fulfil its operational needs. which may have to pay 15% or more in exchange for debt capital.a triple AAA rated firm is going to be able to borrow at extremely low rates versus a speculative company with tons of debt. Debt Capital: The debt capital in a company's capital structure refers to borrowed money that is at work in the business. Retained earnings which represent profits from past years that have been kept by the company and are used to strengthen the balance sheet or fund acquisitions or expansion. to come up with the principal. The safest type is generally considered long-term bonds because the company has years. the difference is that a convertible debenture can convert into common stock during the specified rates and prices in the prospectus. This is because the cost of equity is the return the firm must earn to attract investment. Another type of debt capital can be commercial papers which can be issued by large MNC corporations. Preferred Stock is an equity instrument that the holders participate as a business owner like the same as the Common Stock. The cost of debt capital in the capital structure depends on the health of the company's balance sheet . The various forms of equity that can be used to for capital are: 1. 3.

It should also be possible for the company to provide funds whenever needed to finance its profitable activities. 4. 3. In practice. It should be possible for a company to adapt its capital structure with minimum cost and delay if warranted by a changed situation. 3. The investors realize their profits only after the company earns the profits. 2. Venture capitalist and private equity investors may also bring in experience and help in decision making for the company and key strategy formulation. While developing an appropriate capital structure a financial manager must go for a long term profitability of the firm. Maximum use of leverage at a minimum cost should be made. 5. Hence losing power of making decisions. there would be a range of appropriate capital structures within which there are not many differences in the market values of shares. 2. The funding is committed to the firm’s projects & business only. for most companies within an industry. example: when promoting investments. within the constraints. There can be legal and regulatory issues to comply with when raising finance. The company does not need to keep up with regular servicing of the debts.The capital structure of a company is decided on the basis of the view of an ordinary stakeholder.   Equity Financing Advantages: 1. time consuming and may also take away the management focus away from the core business. The company now will have more number of decision makers. A sound appropriate capital structure should have the following features:  Profitability: The capital structure of the company should be most advantageous. Outside investors expect the business to deliver values and may also contribute with new ideas to drive the business. Raising equity is costly. Debt Financing . Solvency: The use of excessive debt threatens the solvency of the company. Disadvantages: 1. Flexibility: The capital structure should be flexible to meet the changing conditions. Investors may also provide follow-up funding if the business is doing well. Debt should be used judiciously.

Loss in future flexibility. Disadvantages: 1. 2. 3. lowering the actual cost of the loan to the company. Second in the hierarchy comes the debt financing option where companies prefer debt financing and the last in the hierarchy is the equity financing. Managers also value control as this helps in decision taking in an organization. 5. What do firms look out for? There is usually a hierarchy that the firms follow when they frame their capital structure. Forecasting of the loan repayment is much easier. External financing reduces this flexibility. the owners reap a larger portion of the rewards than they would if they had sold stock in the company to investors in order to finance the growth. High interest costs during difficult financial periods can increase the risk of insolvency. The firms initially always go for the retained earnings. Hence managers always look for internal financing options. That is. Interest is a fixed cost which raises the company's break-even point. 4. Debt financing does not dilute the stake of the owner. Assets are needed to be pledged by the company. and has no direct claim on future profits of the business. If the company is successful. Interest on the debt can be deducted on the company's tax return.Advantages: 1. the more risky the company is considered by lenders and investors. 4. 2. Rationale for Financing Hierarchy Managers value flexibility. A lender is entitled only to repayment of the agreed-upon principal of the loan plus interest. No regular information to the stakeholders is required. Shown below is the Preference Rankings for long term financing (Survey by Stern School of business) . 3. the equity financing option is the least preferred option. An equity structure based more on equity would lead to dilution of their stake. This is because it has the lowest cost of capital associated with it. The larger a company's debt-equity ratio.

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where it has been providing information such as credit ratings for different companies. The company has been into existence for more than 150 years and has been providing very important information related to     Independent Credit Ratings Indices Risk evaluation Investment research and data. Though these obligators are safe. which could lead to inability to meet financial needs. An obligator with ‘B’ rating is more vulnerable than above one to meet its obligations.C R Description The obligator has extremely strong to meet the financial obligations and is less likely to be affected by environmental changes. sectors as well as countries. SnP has critically been an essential part of the world’s financial infrastructure. . The have adequate capacity to meet financial obligations.CC. It faces major ongoing uncertainties. but adverse economic conditions is more likely to lead to a weakened position. These obligators are highly vulnerable. and determine whether it is safe and eligible for short term as well as long term debt financial needs. is the leading provider of financial market intelligence in the world. and probably on the verge of bankruptcy. The obligator is under regulatory supervision due to its financial health. also known as SnP. and differ only slightly from the above. These credit ratings help to determine the credit worthiness of the respective entity. After carrying out the detailed evaluation of the company it gives them credit ratings (bond ratings) for long term investments as follows: No 1 2 3 4 5 6 7 8 Rating AAA AA A BBB BB B CCC. they can be affected by changes in circumstances more than the above mentioned.STANDARD AND POOR Standard and Poor. industries. The company has high capacity to meet financial obligations.

8 BBB BB BB BBB BB A A BBB Thus according to our study.5 18. . For this purpose.3 3.6 18.6 11.1 15.4 76.8 1.2 2.4 23.9 29.9 15.8 31. one of them being issue of bonds.3 116.1 20.8 2.7 8.CREDIT RATING FOR HUTCHISON WHAMPOA LIMITED Hutchison Whampoa was in need of long term financing instrument which would help in sustaining its growth for a long term.5 47.9 72.35 29.6 65.4 15.4 2.6 19. and the market would become highly reluctant in buying bonds for the company.1 32.2 9.3 30.15 4.7 6.3 10. it needed to acquire credit bond rating from a financial institute such as Standard and Poor. For the issue of bonds.35 12 16. As soon as it falls to BB.1 6 34.4 46.9 6.3 8.1 14. The rating which this company will be able to acquire is not very lucrative.5 16.9 68.5 23.8 9.7 38.4 43.1 32. it was considering a number of options. which would prove its credit worthiness to raise funds for long term.9 1. it becomes a non-investable grade bonds. since there is a high chance for the company to fall to BB rating if it does not improve its performance.4 11.5 24 13.2 21.9 55.1 53.2 40. as well as to show its credibility in the market as an obligator. According to the financial ratios provided for the company.1 12.7 4. we find that the credit rating the company would get is: THREE YEARS MEDIANS AAA AA A BBB BB B HUTCHISON WHAMPOA EBIT Interest Coverage EBITDA interest coverage Funds from operations/ total debt Free operational cash flow/ total debt Pretax return on capital Operating income/ sales Long term debt/ capital Total debt/ capitalization 16.8 19. the bond rating Hutchison Whampoa would be able to acquire is between BBB and BB.

which is very high with respect to other companies. On the other hand. If it further raises debt from the market. . which are Swire Pacific Limited and Wharf Holdings Limited. these ratios would be significantly affected. both having rating of A from Standard and Poor.Also. Hutchison would acquire a rating which is lower than its major counterpart industries from Hong Kong. the shareholder’s funds are proportionately lower. reducing its credit rating even further. Thus the company needs to be careful with the choice it makes with respect to raising equity or debt from the market. The key financial ratios it needs to work upon in order to improve its credit ratings are:  Funds from Operations/ total debt  Long term debt/ capital  Total debt/ capitalization These critical ratios signify that the apparent reason for low rating is already the high long term debts the company possesses which are about H$26 billon.