August 7, 2017 / 5:50 AM / 2 years ago

Fitch: Consensus Leverage Cuts for Top-100 Chinese Corporates Optimistic

(The following statement was released by the rating agency) Link to Fitch Ratings' Report: 100 Chinese Listed Corporates: Credit Change Zones 2017 here SYDNEY/HONG KONG, August 07 (Fitch) Market expectations for aggregate leverage to halve over 2016-2018f for China's top-100 listed non-financial corporates (Fitch China100 portfolio) are optimistic considering historical trends, says Fitch Ratings in its latest report. Bloomberg consensus estimates (BEst) in mid-2015 had also projected aggregate leverage to fall significantly over 2014-2016, but actual leverage only fell by 0.1 turns, as aggregate EBITDA ended up 12% lower than forecast. BEst expects 88 corporates in the Fitch China100 portfolio to be in positive zones over 2016-2018f, where EBITDA growth is projected to exceed the increase in net debt. This is a shift from the historical 2014-2016 period, when a majority but smaller number of companies were in positive zones characterised by falling leverage. Moreover, BEst's mid-2015 projections proved to be off target, only placing 10% of the Fitch China100 portfolio in negative zones characterised by rising leverage; in reality, 38% ended up in negative zones, including 11 companies in the "Red Pain Zone" of BEst-projected EBITDA decline and rising net debt, as EBITDA forecasts proved overly optimistic. Market expectations of improving credit profiles over 2016-2018f are again driven by higher EBITDA generation and hence falling aggregate leverage, with the most significant falls forecast for the real estate, auto and diversified manufacturing sectors. However, it is quite possible that leverage may not fall to the extent to which BEst is currently forecasting, considering the positive bias of the historic case. Fitch has assigned public ratings to 36 companies in the Fitch China100 portfolio and projects six of these companies to be in opposite leverage zones against BEst. Four of the six companies - China Resources Land Ltd, Country Garden Holdings Co. Ltd., Alibaba Group Holding Limited and Aluminum Corporation of China Limited - are positioned in Fitch's negative zone, where leverage will rise, while BEst forecasts these four companies to be in positive zones. Conversely, Fitch positions two companies - China State Construction Engineering Corporation and Shanghai Electric Group Co., Ltd. - in positive zones, whereas BEst forecasts them in negative zones. The report includes Venn diagrams illustrating overlapping areas of our top-10 lists based on BEst projections. Tencent Holdings Limited, Alibaba, China Mobile Limited, China Vanke Co., Ltd., PetroChina Company Limited and SAIC Motor Corporation Limited are in the top-10 "Blue Joy Zone" of BEst-projected higher EBITDA and debt paydown over 2016-2018f. Conversely, Fosun International Limited and China Eastern Airlines Corporation Limited are in the top-10 "Red Pain Zone". The report also contains scatter charts illustrating each company's zone in the projected and historical periods as well as explanatory notes and rating sensitivities for the 36 Fitch-rated Chinese corporates. Contact: Matt Jamieson Head of APAC Research Corporate Ratings Group Senior Director +61 2 8256 0366 Fitch Ratings Pty Ltd Level 15, 77 King Street, Sydney NSW 2000 Australia Su Aik Lim Senior Director +852 2263 9914 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. 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