June 28, 2017 / 2:48 AM / a year ago

Fitch Assigns Bright Food's Proposed EUR Notes 'A-(EXP)'

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, June 27 (Fitch) Fitch Ratings has assigned Bright Food Singapore Holdings Pte. Ltd.'s proposed euro-denominated notes an expected rating of 'A-(EXP)'. The notes are to be unconditionally and irrevocably guaranteed by China-based Bright Food (Group) Co., Ltd. (BFG, A-/Stable). The notes are rated at the same level as BFG's senior unsecured debt rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. The final rating is contingent upon the receipt of final documents conforming to information already received. KEY RATING DRIVERS Shareholding Reshuffle, Unchanged Linkage: The Shanghai State-owned Assets Supervision and Administration Commission (SASAC) decreased its direct stake in BFG to 8.77% in 2016, from 54.16% in 2015, after transferring most of its stake to Shanghai Municipal Investment (Group) Corporation (Shanghai Chengtou) and Shanghai Guosheng Group Co., Ltd (Shanghai Guosheng), both 100%-owned by Shanghai SASAC. Shanghai Guosheng currently holds 47.56% of BFG and Shanghai Chengtou holds 43.67%. Shanghai Guosheng serves as Shanghai SASAC's investment holding platform and Shanghai SASAC retains administrative power over BFG's management and strategy. Fitch believes the shareholding reshuffle does not change the linkage between BFG and Shanghai SASAC. Pivotal Policy Role: BFG supplies 44.7% of Shanghai's vegetable and edible agriculture products. The group also manages 85% of Shanghai's policy grain reserves and all edible oil reserves. Fitch considers BFG an indispensable safeguard for the city's food quality and believes that as more food-safety regulations are enacted, BFG will solidify its policy role in the industry. Public Listings Add Liquidity: BFG successfully listed its property assets through a backdoor listing of Bright Real Estate Group Co., Ltd. in November 2015. BFG also plans to list Manassen Foods in the near term and is considering listing more subsidiaries to increase return on equity. BFG's liquidity position will benefit from the listings. Leverage Under Control: BFG has acquired several overseas companies since 2010, most recently completing an acquisition of 50% of New Zealand-based meat producer Silver Fern Farms Limited in December 2016. Management has indicated that BFG is committed to integrating the companies it has acquired and at the same time lowering its leverage in the mid-term. In April 2017, BFG announced its deal to sell its 60% stake in Weetabix Food Company to US-based cereal maker Post Holding Inc for GBP1.4 billion based on its enterprise value. BFG's FFO-adjusted net leverage was 5.7x at end-2016 and we expect leverage to remain relatively stable over the medium term if management follows through on its commitments. DERIVATION SUMMARY Fitch assesses BFG's rating by notching down from its internal assessment of the creditworthiness of Shanghai SASAC, reflecting the close linkage between the two entities. BFG is Shanghai's largest vertically integrated trader and supplier of agricultural and food products and services, and is fully owned by Shanghai SASAC. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for BFG include: - Revenue to reach CNY166 billion by 2018 (2016: CNY154 billion) - Revenue growth of below 10% in 2017-2018 (2016: 5%) - EBITDA margin improving to around 8% in 2017-2018 (2016: 7.3%) RATING SENSITIVITIES Future developments that may, individually or collectively, lead to positive rating action include: - an upgrade of Fitch's internal assessment of the creditworthiness of the Shanghai Municipality. Future developments that may, individually or collectively, lead to negative rating action include: - a lowering of Fitch's internal assessment of the creditworthiness of the Shanghai Municipality or evidence of a weakening of BFG's legal, operational and strategic linkages with the Shanghai Municipality. LIQUIDITY BFG had total cash and equivalents of CNY33 billion and unutilised bank facilities of CNY210 billion at end-2016, which are more than sufficient to repay and refinance its outstanding short-term debt of CNY44 billion. Contact: Primary Analyst Yee Man Chin Director +852 2263 9696 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Secondary Analyst Li Chen Analyst +86 21 5097 3009 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Date of Relevant Rating Committee: 26 August 2016 Summary of Financial Statement Adjustments Business taxes and surcharges have been deducted from revenue Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. 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