HK Hutchison bond spreads tighten after Vodafone deal

HONG KONG, Feb 12 (Reuters) Hutchison Whampoa's bond spreads tightened on Monday after a deal to sell its stake in an Indian joint venture for .1 billion sparked hopes the cash may be used to lower the group's debt and improve its credit profile.

The cost of insuring its debt also fell, although there was no official statement on the possible final use for the money.

Shares in Hutchison Whampoa Ltd. were flat in early trade at HK.00 each, while shares in its Hutchison Telecommunications International Ltd. unit, which agreed to sell its 67 percent stake in Hutchison Essar, were suspended before the start of trade on Monday.

Britain's Vodafone Group Plc beat rival suitors with a US.1 billion bid for a majority stake in India's Hutchison Essar that values the mobile phone operator at around US.8 billion, including debt.

Hutchison Whampoa's bonds due in 2014 were quoted at 85/81 basis points (bps) over U.S. Treasuries and the 2033 bonds were at 138/133 bps over, both tighter by 1-2 bps each.

Hutchison's five-year credit default swaps (CDS) -- insurance-like contracts that protect against defaults and restructuring -- were trading by one bps tighter at 23/25 bps, near record tight levels.

''It is positive in the sense that the uncertainty is now out of the way. That could see spreads tighten by a couple of basis points even though it's not clear how the money will be spent,'' said a Hong Kong based trader.

Fitch Ratings said it was too early to change its A-minus rating on Hutchison.

''One of these two things or both need to happen before we take any positive rating action -- if their 3G operations improve tremendously or the substantial pay down of their debt,'' said Fitch analyst Kalai Pillay.

''It's hard for me to see how the money will be spent. The trigger for me to take rating action would be if there is substantial cash moved from Hutchison Telecom to Hutchison Whampoa and it is used to reduce debt at the Hutchison Whampoa level.

''I don't see cash movement that is substantial, because first of all they will have to pay down debt at Hutchison Telecom level.

The other constraint to the rating is the 3G operation, which is not making money yet.

Rival rating agency Standard&Poor's, which has Hutchison's A-minus rating on review for a possible downgrade, was not immediately available for comment on the deal's impact.

REUTERS DKS BST2001