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Rating Action:

Moody's changes CITIC Pacific's outlook to stable from negative

12 Feb 2010

Approximately USD450m in debt securities affected

Hong Kong, February 12, 2010 -- Moody's Investors Service has today changed the outlook on the Ba1 corporate family rating of CITIC Pacific Ltd ("CITIC Pacific") and the Ba1 bond rating of CITIC Pacific Finance (2001) Ltd to stable from negative.

"The change in outlook reflects Moody's opinion that CITIC Pacific's operational and financial profiles have stabilized. The appointment of senior management from CITIC Group seems to have helped the company better focus on its priorities," says Elizabeth Allen, a Moody's VP/Senior Credit Officer.

"CITIC Pacific's leverage is still high but further deterioration is unlikely. Its recurring profit and cash flow generation is likely to improve moderately in the next two years, though its debt level is rising further to support its large capex plan at the same time. As a result, its credit metrics will remain weak until contribution from its iron ore mine becomes meaningful, adds Allen.

The ratings also reflect the company's significant challenges faced by its core business segments -- iron ore mining, specialty steel, and property development. The execution risk related to the sizeable iron ore project in Australia remains high. The project is scheduled to be completed in 4Q2010. The operating environments across these sectors are inherently cyclical.

Mitigating the risks above are the stable cash flows and the diversification offered by CITIC Pacific's infrastructure projects, investment properties, Dah Chong Hong and CITIC1616.

The company's liquidity position has also improved from last year reflecting the signing of new committed facilities and the low amount of debt due during the year. Its access to the bank market, and to Chinese banks in particular, is also strengthened by confidence instilled from its close relationship with CITIC Group (Baa2/negative), its 57.6% parent company.

The Ba1 ratings incorporate a two-notch uplift from a stand-alone Ba3 rating of the company. The rating uplift reflects the expected strong support from CITIC Group in times of difficulties. CITIC Group's response to CITIC Pacific's derivative losses in late 2008 was a clear demonstration of its willingness and ability to support CITIC Pacific.

The stable outlook captures Moody's expectation that CITIC Pacific's overall financial and operating profile will improve after the iron ore mine becomes fully operational. The strong liquidity profile and the pre-funding of major capex also support the rating, despite the weak credit metrics in the next one to two years.

The rating is unlikely to be upgraded in the near term due to the weak financial profile. Upward rating pressure could emerge in the medium term, however, if i) CITIC Pacific generates sustainable returns and cash flow, in particular from its property development, specialty steel and iron ore sectors; and ii) lowers its leverage.

Credit metrics that Moody's will consider for an upgrade include funds from operations ("FFO")/debt above 15-20% and FFO interest coverage above 4-5x on a sustained basis.

Downward rating pressure could evolve if i) the company's investments do not generate satisfactory cash flow and profitability; ii) the iron ore project significantly misses its milestones; and/or iii) its liquidity profile deteriorates.

Financial indicators Moody's will look for are FFO/debt failing to rebound to 10-15% and FFO interest coverage failing to rebound to 3-4x in the next 2 years. Should there be a downgrade of CITIC Group's rating, its support level and hence the rating uplift for CITIC Pacific would also be revisited.

The last rating action with respect to CITIC Pacific was on February 17, 2009 when the ratings were upgraded from Ba2 to Ba1 with a negative outlook.

The principal approach applied in rating CITIC Pacific is found in "Analytical Consideration in Assessing Conglomerates", published in September 2007, which can be found at www.moodys.com in the Credit Policy & Methodologies directory, in the Rating Methodologies subdirectory. Other methodologies and factors that may have been considered in the process of rating CITIC Pacific can also be found in the Credit Policy & Methodologies directory.

CITIC Pacific Ltd, listed in Hong Kong, is a conglomerate 57.6% owned by CITIC Group. It was one of the first Chinese companies to list and invest outside of China. It is engaged in a range of businesses, including special steel manufacturing, iron ore mining, property development and investment, power generation, aviation, infrastructure, communications and distribution.

CITIC Group, headquartered in Beijing, is a conglomerate investment company wholly owned by the State Council of the Chinese government. As of end-2008, it had total consolidated total assets of RMB 1,652 billion.

Hong Kong
Elizabeth Allen
VP - Senior Credit Officer
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
Managing Director
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077

Moody's changes CITIC Pacific's outlook to stable from negative
No Related Data.
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