Fitch: Hong Kong's Northern Metropolis plan of over HK$320 billion puts upward pressure on leverage of government-related entities.

Fitch Ratings said in a report that the development of Hong Kong's Northern Metropolis poses a test for government-related entities (GREs). Fitch Ratings said that Hong Kong GREs are expected to play a significant role in supporting the development of the Northern Metropolis under Hong Kong's first five-year plan. The multi-year plan involves more than HK$320 billion and covers about one-third of Hong Kong's land area, with a target of accommodating 2.5 million people. Fitch said that constrained by the still-early stage of the Northern Metropolis ecosystem, rental and service income is expected to lag, and leverage levels at New Territories Technology City Limited, Hung Shui Kiu Industrial Park Limited, and Hong Kong-Shenzhen Innovation and Technology Park Limited may rise. Other broader supporting GREs, such as MTR CORPORATION, universities, and social housing developers, also face similar mismatches and are maintaining relatively high leverage as the capital expenditure cycle continues. The report noted that the financing models for the three dedicated Northern Metropolis GREs New Territories Technology City Limited, Hung Shui Kiu Industrial Park Limited, and Hong Kong-Shenzhen Innovation and Technology Park Limited have yet to be finalized. If they shift toward front-loading capital expenditure through debt to support Northern Metropolis development, leverage levels may rise, similar to the "build first, monetize later" model seen in industrial zone development in Guangzhou and Shenzhen, where comparable local entities mainly finance initial construction through long-term debt and then make further arrangements after rental income stabilizes. Fitch noted that government support remains a key credit anchor, with capital injections, land grants, and concessional loans able to offset revenue lags, a model also seen in mainland operating paradigms. However, execution risk still rests entirely with the GREs themselves and may over time lead to divergence in the credit profiles of Northern Metropolis-related entities.