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Issuer Credit Research

Issuer Flash: HKT Trust and HKT Limited

Issuer: Hkt Trust And Hkt | Document: Issuer Flash | Date: 2026-07-30 | Event: H1 2026

Report date: 2026-07-30 Event date: 2026-07-29 Event title: H1 2026 Results and Refinancing Update

1. Flash Conclusion

HKT's H1 2026 results support, rather than materially strengthen, the prior view of a defensible investment-grade telecommunications operating credit with limited financial headroom. Recurring Telecommunications Services (TSS) and Mobile Services expanded, EBITDA and adjusted funds flow (AFF) both rose 3%, and the group pre-funded a July 2026 US$750 million maturity with a new US$650 million 2036 note. These are constructive for operating resilience and near-term funding execution. The result does not, however, establish a deleveraging trend: gross debt rose with the pre-funding, the interim distribution again equalled reported AFF, and the disclosure does not confirm the completed repayment of the July note or give a post-repayment maturity profile.

The operating-credit anchors remain HKT's Hong Kong fixed, broadband, mobile and enterprise-connectivity franchise, investment-grade issuer ratings, and sizeable undrawn bank facilities. The principal bondholder constraints also remain: dependence on regular market and bank access, high cash distributions under the stapled-security structure, parent-company control through PCCW, and the need to verify security-specific terms separately. The new notes are irrevocably and unconditionally guaranteed by HKT Group Holdings Limited and Hong Kong Telecommunications (HKT) Limited, but the announcement should not be read as a substitute for reviewing individual offering and trust-deed documentation.

2. Operating Performance: Recurring Services Continue to Carry the Result

For the six months ended 30 June 2026, total revenue increased 8% year on year to HK$18.685 billion and total EBITDA increased 3% to HK$6.586 billion. The headline revenue increase was helped by an 83% rise in Mobile product sales to HK$1.854 billion. For credit purposes, the more relevant comparison is revenue excluding Mobile product sales, which increased 3% to HK$16.831 billion, while EBITDA excluding those sales also increased 3% to HK$6.581 billion. This distinction is important because handset revenue can enlarge reported turnover without carrying the recurring margin and cash-generation quality of telecommunications service revenue.

TSS remained the largest earnings contributor. TSS revenue rose 3% to HK$12.913 billion and EBITDA increased 2% to HK$4.508 billion, maintaining a 35% margin. Local Data Services grew 6% to HK$7.265 billion, with broadband revenue up 3%, while International Telecommunications Services revenue increased 2% to HK$3.899 billion. The period-end FTTH base reached 1.101 million connections, up 4% year on year, and the company reported strong upgrading to its 2500M service. These indicators are consistent with the existing view that HKT's fixed-network and broadband customer base provides a relatively resilient earnings platform, although they do not by themselves demonstrate an improvement in the group's overall leverage capacity.

Mobile showed a favourable mix within the reported growth. Mobile revenue increased 20% to HK$6.248 billion, but Mobile Services revenue, the more recurring component, increased 5% to HK$4.394 billion and Mobile Services EBITDA rose 5% to HK$2.527 billion. The 5G customer base increased 16% to 2.2 million, while post-paid subscribers rose 1% to 3.522 million. HKT attributes the service-revenue improvement to 5G adoption and roaming. The Mobile Services EBITDA margin remained high at 58%, compared with 41% for the combined Mobile segment, again underscoring why product sales should not be treated as the primary credit read-through.

Enterprise momentum was also constructive but should be assessed by its conversion into repeatable cash earnings. HKT reported 8% Enterprise revenue growth and more than HK$2.2 billion of new project wins. Its AI-related connectivity, cyber-security and data-centre interconnection initiatives may deepen demand for the network, and management says certain AI-data-centre investment is supported by pre-funding from anchor customers. At the same time, contract value and technology positioning are not equivalent to realised EBITDA or cash flow. Other Businesses remained EBITDA-negative at HK$454 million for H1, broadly unchanged from the prior-year loss, so they should not be treated as a material debt-service source.

3. Cash Flow, Liquidity and Refinancing Read-Through

AFF increased 3% to HK$2.639 billion. The movement reflected higher EBITDA, lower right-of-use asset payments and a 2% decline in net finance costs paid, partly offset by higher customer-acquisition and fulfilment costs and a substantial increase in tax paid. Net finance costs in the income statement fell 13% to HK$768 million; HKT reported an average cost of debt of 3.75%, down from 3.96% a year earlier. Capital expenditure including capitalised interest was HK$1.042 billion, or 5.6% of revenue, compared with 6.2% a year earlier. This combination is positive for underlying financial flexibility, but it has not yet translated into retained cash because the declared interim distribution of HK$2.639 billion, or 34.80 Hong Kong cents per Share Stapled Unit, exactly matched AFF.

The key funding development was the 10 June issuance by HKT Capital Limited of US$650 million 5.125% notes due 2036 under its US$3 billion guaranteed medium-term note programme. HKT says the issuance pre-funded US$750 million of 10-year senior unsecured notes due in July. The new notes are listed in Singapore, are guaranteed by HKT Group Holdings Limited and Hong Kong Telecommunications (HKT) Limited, and rank pari passu with other unsecured and unsubordinated obligations of those guarantors. This is a meaningful reduction in execution risk before the scheduled maturity, particularly because it locks in a longer tenor. Two constraints limit the de-risking benefit: the 29 July materials do not confirm the actual repayment mechanics or final post-maturity debt balance, and the US$650 million issue is smaller in face amount than the US$750 million notes described as due in July.

Pre-funding raised gross debt to HK$48.161 billion at 30 June from HK$44.750 billion at year-end, while cash and short-term deposits rose to HK$3.227 billion from HK$2.432 billion. Banking facilities totalled HK$47.594 billion, of which HK$23.328 billion was undrawn. Those figures give HKT material liquidity capacity while the maturity is handled, and the disclosure states that management considers the group able to meet liabilities over the following 12 months after considering operating cash inflow, debt financing capacity and undrawn facilities. However, current liabilities exceeded current assets by HK$18.550 billion, and the balance sheet still depends on the normal functioning of bank and capital-market funding. This reinforces the existing emphasis on confirmed maturity management, rather than treating the facility headline as a substitute for sustained deleveraging.

4. Credit Interpretation and What to Watch Next

The disclosed Baa2 rating from Moody's and BBB rating from S&P for Hong Kong Telecommunications (HKT) Limited remained investment grade at 30 June 2026. Together with stable core-segment EBITDA, 3% AFF growth and the pre-funded note issue, this keeps the immediate credit direction broadly stable. It does not remove the structural constraints identified in the May summary. The group continues to distribute the full reported interim AFF, the refinancing adds to gross debt until the July note is retired, and the economics of enterprise and AI initiatives must still be demonstrated in recurring margins and cash generation. PCCW ownership and related capital-allocation incentives remain relevant to cash retention, but should not be treated as a guarantee or support commitment.

The next confirmation should be the formal treatment of the US$750 million July maturity, including the post-repayment gross-debt and cash position, any use of facilities, and the revised maturity ladder. The subsequent semiannual review should test whether TSS and Mobile Services EBITDA continue to outpace the group’s funding and distribution burden; whether AFF continues to cover distributions without meaningful retained cash; and whether capex for fibre, 5G and AI-related connectivity stays aligned with the stated pre-funding and return criteria. Bond-specific analysis still requires the relevant offering circular and trust deed, including guarantee scope, ranking, negative pledge, change-of-control and default provisions. The FCC proceeding, market spreads and detailed current rating-agency triggers were not resolved in the interim disclosure and remain separate monitoring items.

5. Sources