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Global Credit Research - 08 Nov 2010
Approximately US$250 million of debt affected
Hong Kong, November 08, 2010 -- Moody's Investors Service has placed its B2 corporate family and
its B2 senior unsecured bond ratings on Lumena Resources Corporation under
review for possible downgrade.
The review follows Lumena's announcement of its proposed acquisition
of Sino Polymer New Materials Co., Ltd., a polyphenylene
sulphide (PPS) producer in China, which is 43%-owned
by Mr. Suolang Duoji, the Chairman of Lumena. The
acquisition is designed to expand Lumena's downstream business,
asset base, cash flow and add product diversity.
Lumena plans to acquire up to 95% equity interest of Sino Polymer
which has been valued at US$1.5 billion - for 100%
ownership. 90% of the acquisition consideration will be
settled by an issue of common shares by Lumena, 10% by cash.
"The proposed acquisition represents an aggressive expansion,
as the target company is slightly bigger by revenue than Lumena,"
says Jiming Zou, a Moody's Analyst.
"In addition, the benefits of any potential synergies are
yet to be established, as at present Sino Polymer does not rely
on Lumena for its raw material supply to any material extent,"
"In the absence of well established banking facilities, Lumena's
funding risk profile will likely be increased with the expanded operations,"
"Even though Lumena will fund most of the acquisition with new shares,
it still needs to raise around RMB 1 billion, which will add funding
risk," adds Zou.
"Furthermore, a substantial amount of assets -- about
RMB 1.6 billion - Sino Polymer's assets have been
pledged in support of related party transactions. Whether Sino
Polymer can resolve these charges on its assets is unclear at this point,"
"These elements -- the aggressive transaction, the amount
of both companies' near-term funding needs, and the
discharge of asset pledges -- could affect Lumena's ability
to comply with the covenants of its US$250 million bonds,
which may pressure the current ratings."
In its review Moody's will assess Lumena's ability (1) to
raise RMB 1 billion to complete the acquisition; (2) to remove the
charge on Sino Polymer's assets; and (3) maintain a credit
profile that will not affect its obligations under the bond indenture.
The principal methodology used in rating Lumena was Moody's Global
Chemical Industry Rating Methodology, published in February 2006
and available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
The last rating action on Lumena was taken on 27 January 2010 when its
ratings were downgraded to B2 from B1 after Moody's completed a
rating review initiated on 30 December 2009, which followed Lumena's
announcement that controlling shareholder Suolang Duoji had pledged a
stake of about 20.5% in the company for a short-term
loan from Bank of China International.
Lumena Resources Corp. mines, processes, and manufactures
natural thenardite products. Thenardite is also known as anhydrous
sodium sulphate, a basic chemical. Lumena operates two mines
and processing facilities in Sichuan Province in China with an annual
production capacity of around 1.6 million tons. It was listed
on the Hong Kong Stock Exchange in June 2009.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's Investors Service Hong Kong Ltd.
Moody's reviews Lumena for possible downgrade
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