Fitch downgrades China Fishery to 'BB-'

Last Updated: Mon, Dec 03, 2012 12:52 hrs

Singapore/Hong Kong/Seoul, Dec 3 (IBNS): Fitch Ratings on Monday said it has downgraded investment holding company China Fishery Group Limited's (China Fishery) Issuer Default Rating (IDR), its senior unsecured rating and USD300m senior unsecured notes to 'BB-' from 'BB' and placed them on Rating Watch Negative.

"The downgrade reflects a sharp deterioration in China Fishery´s earning visibility over the next two years as two of its three core operations, contract supply in Russia and China Fishery fleet (CF fleet), face increased risk," said the global rating agency.

"The Negative Watch reflects potential material financial losses at its contract supply business, following media reports that their activity may be in breach of Russian law. Fitch expects to conclude its assessment and resolve the Rating Watch by February 2013."

Pacific Andes, the parent group of China Fishery, and Japanese and Korean fishery companies are reportedly facing allegations from Federal Antimonopoly Service (FAS) that their ownership of Russian strategic resources (fishing rights) are illegal.

FAS has also reportedly suggested alternative ways for Pacific Andes to continue operating in the Russian Federation.

"This suggests the fishing industry in Russia may undergo restructuring, increasing uncertainty for companies operating in this region," said Fitch.

Recently announced annual results showed poor catch volume at the CF fleet with a 59% year- on-year decline in revenue.

"Moving beyond South Pacific to Namibia and North Atlantic has not improved the fleet´s utilisation. It remains unclear whether the CF fleet has found a sustainable fishing ground in these waters to allow regular and stable catch volumes.

"By contrast, such stability has been achieved in its contract supply business and Peruvian operations by having a total allowable catch quota system managed by the respective governments," said Fitch.

China Fishery´s rating is supported by its continued ability to service its debt.

"Liquidity remains adequate and its Peruvian operations continue to deliver stable earnings, averaging USD60m over the last three financial years (year end 30 September). Its FY12 leverage, as measured by net debt/EBITDAR, weakened to 2.99x from 2.54x at FY11, largely due to a USD98m increase in working capital needs which are affected by the timing of its fishing seasons.

"The reversal of this working capital need and its USD51m cash are sufficient to meet repayment of short-term borrowing of USD149m, without considering its operating cash flow," it said.

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