(The following was released by the rating agency)
HONG KONG (Standard & Poor‘s) July 20, 2012--Standard & Poor’s Ratings Services said today that the corporate credit rating and outlook on China Automation Group Ltd. (CAG: BB-/Negative/--; cnBB/--) are not affected by the company’s lower net profit in the first half of 2012. We had already anticipated that CAG’s profitability could be under pressure in 2012 because of uncertain prospects for the railway industry.
The rating could come under pressure if CAG’s financial strength becomes weak for the rating category. This could happen if the execution of railway investments continues to be delayed or an increase in working capital leads the company to significantly boost its use of debt.
On July 18, 2012, CAG said that its net profit for the first half of 2012 would be lower than that of a year ago because of: (1) a delay in the execution of railway contracts; (2) foreign exchange losses due to the renminbi devaluation; and (3) an increase in interest expense due to US$200 million senior unsecured notes the company issued in April 2011.