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Announcement:

Moody's: AVIC International's rating is unaffected by Tianma Micro-electronics' proposed equity placement

 The document has been translated in other languages

30 Jan 2015

Hong Kong, January 30, 2015 -- Moody's Investors Service says that Tianma Micro-electronics' proposed equity placement is credit positive for AVIC International but has no immediate impact on AVIC International Holding Corporation's Baa3 rating and negative outlook.

On 29 January 2015, Tianma Micro-electronics Company Limited (Tianma, unrated), a key subsidiary of AVIC International Holding Corporation (AVIC International, Baa3 negative), announced that it would issue new equity of around RMB6 billion.

"If the equity placement goes ahead, it will be credit positive for AVIC International, because it will help alleviate the pressure on the company's financial leverage", says Joe Morrison, a Moody's Vice President and Senior Analyst, and the International Lead Analyst for AVIC International.

"However, this transaction will not materially improve AVIC International's financial profile, given the small scale of the placement relative to the parent's total adjusted debt of RMB121 billion as of 30 June 2014." says Pingping Xing, a Moody's Assistant Vice President and the local market analyst for AVIC International.

Tianma said that it would use the proceeds to construct its sixth generation LPTS-LCD (low temperature poly silicon-liquid crystal display) and CF (colored filter) production line through its wholly owned subsidiary, Wuhan Tianma Microelectronics Co., Ltd (unrated).

In addition to the equity raising, we expect that Tianma will borrow syndicated loans of RMB6 billion to fund its production line. The project is part of AVIC International's strategy to grow its LCD businesses.

We project that the equity placement will increase AVIC International's consolidated equity base by around 16% and lower its leverage moderately.

In particular, its debt/capitalization will be at 74.1%, which is a result 3.5% lower than the same ratio in a scenario assuming that the project is fully funded by a syndicated loan of RMB12 billion, if all other factors as of 30 June 2014 remain unchanged

While the proposed equity issuance will dilute AVIC International and its subsidiaries' combined shareholding in Tianma from 39.81% to 30.72%, AVIC International will continue to maintain control of Tianma's board of directors, and Tianma will remain a core subsidiary of AVIC International.

AVIC International's debt levels have risen rapidly over the past four years, driven by aggressive land acquisitions and fast expansion in its other diversified businesses such as trading. As a result, its adjusted debt/capitalization reached 76.0% at end-June 2014, up from 66.0% at end-2010.

Since 2H 2014, AVIC International has taken actions to alleviate its debt levels. For example, Tianma issued equity totaling RMB1.73 billion in September 2014. AVIC International Holding (HK) Limited (unrated), one of its listed subsidiaries, also issued equity of HKD534 million in December 2014.

Tianma's proposed equity placement further demonstrates AVIC International's willingness to deleverage.

The principal methodology used in this rating was Business and Consumer Service Industry published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Tianma Micro-electronics Company Limited, a subsidiary of AVIC International, is a major LCD and LCM manufacturer in China. Tianma had revenue of RMB4.7billion for the 12 months ended in June 2014.

AVIC International, which is 62.52%-owned by Aviation Industry Corporation of China (AVIC, unrated), is AVIC's largest subsidiary in terms of revenue and profit contribution. AVIC International is AVIC's key platform for its international aviation businesses. AVIC International also aggregates most of the non-aviation related businesses of AVIC Group, including property, commodity trading, construction, retail, consumer products, high-tech electronics and resources development. AVIC International had revenue of RMB151billion for the 12 months ended in June 2014.

The Local Market Analyst for this rating is Pingping Xing, +86 (10) 63196561

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Joe Morrison
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's: AVIC International's rating is unaffected by Tianma Micro-electronics' proposed equity placement
No Related Data.
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