Moody’s might drop Shanghai Huayi

Moody's Investors Service said it placed Shanghai Huayi (Group) Co.’s Baa2 issuer rating under review for downgrade.

At the same time, the agency placed the Baa3 rating on the dollar-denominated notes issued by Huayi Finance I Ltd. under review for downgrade.

The notes are irrevocably and unconditionally guaranteed by Huayi Group (Hong Kong) Ltd., a wholly owned subsidiary of Shanghai Huayi. The notes benefit from a keepwell and liquidity support deed (KWA) and a deed of equity interest purchase undertaking provided by Shanghai Huayi.

"The rating action mainly reflects the material deterioration in Shanghai Huayi's profitability amid a slowing domestic economy and growing oversupply in commodity chemicals," Gerwin Ho, Moody's vice president, senior analyst and the international lead analyst for Huayi, said in a news release.

"Consequently, despite its efforts to reduce its debt levels, we expect the company's financial leverage will increase significantly in 2015 and remain elevated over the next 1-2 years," Jiming Zou, Moody's assistant vice president and the local market analyst in China for Huayi, also said in the release.

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