TEXT-S&P revises Li & Fung Outlk to neg; affirms 'A-' rtg
(The following statement was released by the rating agency)
Nov 02 -
-- In our view, Li & Fung's operations and financial performance are unlikely to improve in 2012 over 2011 due to a weak first half year and sustained weak market sentiment.
-- We believe the Hong Kong-based sourcing, logistics, and distribution company is likely to need more funding, including debt funding, for acquisitions to meet its three-year target in 2013.
-- We view the company's business risk profile as "strong" and its financial risk profile as "intermediate."
-- We are revising the rating outlook to negative to reflect the challenging operating conditions and uncertain recovery prospects in 2013.
-- We are affirming the 'A-' rating on Li & Fung and the 'A-' issue rating on its outstanding senior unsecured notes. We are also lowering our Greater China regional scale rating on the company and the notes to 'cnAA-' from 'cnAA'.
On Nov. 1, 2012, Standard & Poor's Ratings Services revised the rating outlook on Hong Kong-based sourcing, logistics, and distribution company Li & Fung Ltd. to negative from stable. At the same time, we affirmed the 'A-' long-term corporate credit rating on Li & Fung and the 'A-' issue rating on the company's outstanding senior unsecured notes. As a result of the outlook revision, we lowered our Greater China regional scale rating on Li & Fung and its notes to 'cnAA-' from 'cnAA'.
We revised the outlook to reflect our view that Li & Fung's operations and financial performance are unlikely to improve in 2012 over 2011, when the company's credit ratios were already weak for the rating. The weaker-than-expected performance is due to challenging operating conditions in Li & Fung's key markets, including Europe and the U.S. The U.S. and Europe accounted for 80% of the company's turnover in the first six months of 2012. In our view, recovery prospects remain uncertain for the next 12 months. At the same time, the company has an aggressive growth target for 2013. We believe Li & Fung may need additional funding to support accelerated acquisitions to try and meet its three-year target. A negative outlook suggests more than one in three chance of a rating downgrade in the next two years.
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