December 4, 2012 / 7:06 AM / in 5 years

TEXT-S&P revises China Fishery outlook to negative; afrms 'B+' rtg

Our liquidity assessment incorporates the following expectations and assumptions:

-- China Fishery’s sources of liquidity, including cash of about US$120 million, a committed revolver line, and FFO of close to US$150 million as of Sept. 30, 2012, can cover its uses of liquidity by more than 1.2x over the next 12 months.

-- As of Nov. 30, 2012, China Fishery has about US$120 million in undrawn committed revolver facilities. However, in our opinion, these facilities might not be available if the company experienced any material negative operational shock.

-- Liquidity uses include debt repayments, committed capital expenditure, working capital needs, and dividend.

-- The company will be in compliance with its financial covenants even if EBITDA declines by 10%.

-- The group has a good standing in the credit markets, particularly with banks such as Hongkong and Shanghai Banking Corp., Standard Chartered Bank , and Rabobank.


The negative outlook reflects our view that the risk of adverse effects on China Fishery’s Russian operations over the next six to 12 months could be significantly higher than we had earlier expected. However, we understand that the company is still seeking clarification from the Russian government.

We could lower the rating if: (1) China Fishery loses material contract fish supply in Russian waters, experiences severely weaker profitability, or is heavily fined for breaching the laws in that country; (2) the company’s liquidity position deteriorates to “weak”; or (3) the financial performances of China Fishery’s direct and indirect parent companies, Pacific Andes Resources Development Ltd. (not rated) and PAIH, weaken materially, such that PAIH’s total-debt-to-EBITDA ratio exceeds 6.0x.

Rising regulatory risk limits the rating upside for the next few years. We could revise the outlook to stable if the situation in Russia stabilizes so that the revenue generation and profitability of China Fishery’s contract supply business do not deteriorate materially. We could also revise the outlook if the company diversifies geographically, improves its product mix, and maintains a solid financial performance.

Related Criteria And Research

-- Business Risk/Financial Risk Matrix Expanded, Sept. 18, 2012

-- Methodology and Assumptions: Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011

-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008

-- 2008 Corporate Criteria: Ratios And Adjustments, April 15, 2008

-- Parent/Subsidiary Links; General Principles; Subsidiaries/Joint Ventures/Nonrecourse Projects; Finance Subsidiaries; Rating Link to Parent, Oct. 28, 2004

Ratings List

Ratings Affirmed; CreditWatch/Outlook Action

To From

China Fishery Group Ltd.

Corporate Credit Rating B+/Negative/-- B+/Stable/--

CFG Investment S.A.C.

Senior Unsecured B+


To From

China Fishery Group Ltd.

Greater China Regional Scale cnBB-/--/-- cnBB/--/--

CFG Investment S.A.C.

Senior Unsecured cnBB- cnBB

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