Approximately US$225 million in debt securities affected
Hong Kong, January 04, 2011 -- Moody's Investors Service has upgraded to Ba3 from B1 its corporate family
and senior unsecured bond ratings on China Fishery Group Limited (CFG).
The outlook for the ratings is stable.
RATINGS RATIONALE
"The upgrade was prompted by the recent refinancing of the company's
short-term debt with a medium-term club loan, as well
as CFG's established operating track record in Peru and North Pacific,"
says Ken Chan, a Moody's Vice President.
"CFG's improved capital structure can better support its strong
growth appetite," said Chan, adding that "this
also lowers near-term refinancing risk, as a heavy reliance
on short-term debt financing had been a rating concern."
The company has drawn down approximately US$200 million of its
four-year amortizing US$425 million club loan for the refinancing,
including a US$85 million committed revolver. This has lowered
its short-term to total unadjusted debt ratio to the current 10%,
from 33% as of September 2010.
Moreover, CFG's Peruvian fishmeal operations are progressing,
and its North Pacific operations continue to generate stable cash flow.
Moody's sees limited downside risk to the company's starting
operations in Mauritanian waters, since its incremental investment
will be limited because it will be using the fleet from its South Pacific
operations during the latter region's off-peak fishing seasons.
However, the rating does reflect a certain degree of cash flow volatility
stemming from fish and fishmeal prices, as well as the inherent
risk in the sea catch fishing industry such as the El Niño phenomenon
in 2010 and the potential La Niña effects in 2011. This
has resulted in a lower than expected catch in the company's South
Pacific operations.
The planned dual listing in Hong Kong, could be mildly credit-positive,
but Moody's expects CFG will deploy the equity proceeds to fund
future expansion, particularly in light of the current projected
negative free cash flow generation.
The stable outlook reflects Moody's expectation that CFG will adopt a
prudent approach in pursuing its future expansion plan.
The rating may experience upward pressure if CFG can 1) further diversify
its sources of raw materials, possibly by expanding the scale of
its Peruvian and South Pacific operations; 2) pursue a more stable
expansion strategy, such that free cash flow turns positive;
and 3) improve its credit profile, such that adjusted RCF/debt rises
above 30% and adjusted Debt/EBITDA below 2.0-2.5x.
Negative rating pressure will arise if CFG's 1) adjusted RCF/debt declines
below 15-20% and adjusted Debt/EBITDA above 4.0x,
possibly as a result of a deteriorating operating environment, aggressive
dividend payouts, or further debt-funded acquisitions or
expansion; or 2) capital structure weakens, such that the company's
reliance on short-term debt financing rises, leading to a
rise in refinancing risk.
Evidence that CFG is providing financial support to other Pacific Andes
group companies would also pressure the rating.
The last rating action with respect to China Fishery was taken on February
16, 2007, when its ratings were affirmed at B1, with
a stable outlook.
The principal methodology used in rating China Fishery is Moody's
Global Food - Protein and Agriculture Industry Methodology,
which can be found at 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.
China Fishery Group Ltd, listed in Singapore, is engaged mainly
in deep sea industrial fishing in Russian and Peruvian waters.
Its catches are processed on board, and frozen, packed,
and delivered to market. It is 38% effectively owned by
Pacific Andes International Holdings Ltd, a Hong Kong-listed
integrated fish and seafood product processor.
REGULATORY DISCLOSURES
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, and confidential
and proprietary Moody's Investors Service information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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.
Hong Kong
Ken Chan
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Hong Kong
Peter Choy
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
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Moody's upgrades rating on China Fishery to Ba3
