Fitch lowers China Hongqiao view to negative

Fitch Ratings said it revised China Hongqiao Group Ltd.'s outlook to negative from stable.

The agency also affirmed the company’s long-term foreign- and local-currency issuer default ratings at BB.

Fitch also said it affirmed the company’s senior unsecured ratings and ratings on its outstanding $400 million 7 5/8% senior unsecured notes due 2017 and $300 million 6 7/8% senior unsecured notes due 2018 at BB.

The outlook revision follows China Hongqiao's persistent high debt-funded capital expenditure, which has resulted high negative free cash flow and financial leverage exceeding the threshold for the BB rating, Fitch explained.

China Hongqiao, the world's largest aluminum producer, has funded its capacity expansion mainly through debt because its cash-flow-from-operation (CFO) was significantly below capital expenditure, the agency said.

The company’s ability to deleverage toward the tolerance level for the rating depends on management's willingness to reduce capital expenditure and adhere to its targets, Fitch added.

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