Fitch lifts Shanghai Huayi view to stable

Fitch Ratings said it affirmed Shanghai Huayi (Group) Co.'s long-term issuer default rating and senior unsecured rating at BBB- and revised the outlook to stable from negative.

The agency also said it affirmed the senior unsecured rating on the $350 million senior unsecured notes due 2019 issued by Huayi Finance I Ltd. at BBB-.

The notes are unconditionally and irrevocably guaranteed by Huayi Group (Hong Kong) Ltd., a 100% owned subsidiary of Huayi, which granted a keepwell deed and deed of equity interest purchase undertaking to ensure the issuer and guarantor have sufficient assets and liquidity to meet their obligations, Fitch said.

The outlook revision reflects an expectation that the company will start de-leveraging in 2016 due to its improving operating EBITDA margin and sustained lower capital expenditure trend, the agency said.

The rating on the notes benefits from a two-notch uplift from the group’s standalone credit profile of BB to reflect moderate linkages with the Shanghai municipality, Fitch said.

The company expects to achieve a consolidated operating EBITDA margin of 4% in 2016, which will further improve to 5% in 2017, the agency said.

This is driven by the cost reduction for its coal chemical segment in 2016, accounting for 14% of total consolidated revenue in 2015, Fitch said.

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