International credit rating agency Fitch Ratings has expressed concerns over the potential downward risks to retail rental income in Hong Kong if retail sales continue to remain weak.
Fitch pointed out that the mainland and Hong Kong property companies covered by its ratings are facing reduced interest coverage ratios and rating headroom in the face of a high interest rate environment and pressures in the office segment. The recent weakness in retail sales in Hong Kong, if prolonged, could lead to downward risks to retail rental income.
The agency believes that delays in interest rate cuts, long-term oversupply in the office market, and sustained weakness in retail consumption in Hong Kong could all increase pressure on the interest coverage ratios of rated issuers.
However, Fitch indicated that there are other factors supporting the investment grades of rated issuers, such as resilient real estate investment portfolios, conservative balance sheets, and robust funding channels. In addition, growing investment property portfolios, flexible dividend policies, and diversified sources of non-development income can help mitigate the impact of declining interest coverage ratios for some rated issuers.