Reuters logo
20 days ago
Fitch Assigns Huiyuan Juice First-Time 'B+' Rating; Rates Bonds
August 4, 2017 / 1:26 AM / 20 days ago

Fitch Assigns Huiyuan Juice First-Time 'B+' Rating; Rates Bonds

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, August 03 (Fitch) Fitch Ratings has assigned juice producer China Huiyuan Juice Group Limited a Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'B+' with a Stable Outlook. Fitch has also assigned a senior unsecured rating of 'B+' with a Recovery Rating of 'RR4'. In addition, Fitch has assigned the proposed US-dollar senior unsecured notes to be issued by Huiyuan Juice an expected rating of 'B+(EXP)' with a Recovery Rating of 'RR4'. The proposed notes are rated at the same level as Huiyuan Juice's senior unsecured rating as they constitute its direct and senior unsecured obligations. The final rating on the proposed US dollar notes is contingent upon the receipt of final documentation conforming to information already received. Huiyuan Juice's ratings are supported by the company's strong brand name and long operating history in China's juice market and its efforts in expanding and diversifying its product range internally and through acquisitions. The company's ratings are constrained by its volatile top line performance, relatively small business scale and high leverage. Fitch also views the extended trade receivable days at end-2016 as a credit weakness. KEY RATING DRIVERS Leading Chinese Juice Producer: Fitch sees Huiyuan Juice's strong brand, leading market position and integrated operations as its key competitive advantages. Huiyuan Juice has produced and sold juice products in China for more than 20 years, with a dominant market share in 100% juice and juice nectar products in China over the past 10 years. The company also has an integrated business model that encompasses upstream and downstream juice production, which allows for greater bargaining power and lower seasonal volatility. Domestic and International Expansion: In 2015, Huiyuan Juice acquired 100% of Suntory (Shanghai) Foods Co., Ltd and 50% of Suntory (Shanghai) Beverage Co., Ltd for CNY74.5 million. The acquisition enabled Huiyuan Juice to take control of Suntory's non-alcoholic beverage business in China. Huiyuan Juice also agreed in 2017 to establish a joint venture company in Malaysia with Yeo Hiap Seng Limited, which will expand its operations in Malaysia and south-east Asia. Fitch believes the two deals will help diversify Huiyuan Juice's business portfolio, although the company will face execution risk, as both businesses are at early stages of development. Large Trade Receivables: Huiyuan Juice reported negative operating cash flow in 2016, mainly due to a sharp rise in trade receivables as the company offered longer payment terms to its distributors to boost product sales. Trade debtor days was 194 days at end-2016, up from 109 days at end-2015. Fitch sees the extended working capital cycle as a credit weakness. However, the company has taken steps to collect the receivables since the beginning of 2017, and management said that the trade receivable amount has been reduced by end-June 2017. Limited Capital Expenditure Requirements: The capacity utilisation rates of Huiyuan Juice's production facilities have been low for many years due to over-expansion in the past. Huiyuan Juice has been disposing of some of its idle and inefficient capacity, which raised around CNY173 million in 2014, CNY1.01 billion in 2015 and CNY468 million in 2016. As a result, Fitch does not expect major capital expenditure in the near future. The company is also exploring international opportunities, which may allow the company to relocate idle production lines to overseas facilities. High Leverage, Moderate Coverage: Huiyuan Juice posted moderately strong FFO fixed charge coverage of 3.0x at end-2016, but its leverage - measured by FFO-adjusted net leverage - was moderately high at 4.8x. Fitch believes that the company would maintain the current coverage ratio at around 3x for the next three years. We also expect the company's leverage to remain at around 5x, driven by single-digit revenue growth, moderate margin and large working capital needs. DERIVATION SUMMARY Huiyuan Juice's financial profile is weaker than that of international food and beverage peers rated at 'BB' or above. Within our China consumer portfolio, eHi Car Services Limited (eHi, BB-/Negative) is similar to Huiyuan Juice in size, but eHi has lower leverage and stronger coverage than Huiyuan Juice. The company's financial metrics are more in line with peers rated in the 'B' category. Compared with Agri Business Holding Miratorg LLC (B+/Stable), Huiyuan Juice has smaller EBITDA and higher leverage, but the two companies share similar coverage ratios. Miratorg's ratings is capped at the 'B' category due to its corporate governance and the operating environment in Russia, which explains its better than 'B+' rated peer financial metrics. Compared with 'B' rated peers such as Premier Foods plc (B/Negative) and Yasar Holding A.S. (B/Stable), Huiyuan Juice has similar EBITDA size but stronger FFO margin and FFO fixed charge coverage. Huiyuan Juice has similar EBITDA size and coverage compared with Labeyrie Fine Foods SAS (Labeyrie, B-/Stable), but Fitch believes Huiyuan Juice's strong market position in the China juice market warrants a higher rating. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue growth to remain around 7% in 2017 and 2018. - EBITDA margin to remain close to 16% in 2017 and 2018. - Capital expenditure to reduce to CNY200 million per annum, as the company has no major new capex plan. - No common dividend payout; and no share repurchase. Key Recovery Rating Assumptions: - The recovery analysis assumes Huiyuan Juice would be liquidated in a bankruptcy rather than continue as a going-concern. - Recovery analysis applied a haircut of 50% for CNY3.18 billion of receivables, a 50% haircut for CNY1.22 billion of inventory and a 50% haircut for all property, plant and equipment, affiliates and minority interest and other assets, In Fitch's view, Huiyuan Juice's account receivables are more difficult to recover compared with those of other companies, and hence assigns lower recovery rate on this. - Pledged cash of CNY200 million against bank borrowings is considered as available to creditors. - 10% administrative claims are applied on the liquidation value. - Offshore secured debts and unsecured debts of Chinese operating entities move ahead of offshore unsecured debt holder in the distribution waterfall; - Based on our calculation of the adjusted liquidation value after administrative claims, we estimate the recovery rate of the offshore senior unsecured debt to be 54%, The Recovery Rating of Huiyuan Juice is capped at 'RR4', which reflects average recoverability for offshore creditors in China. RATING SENSITIVITIES Developments That May, Individually or Collectively, Lead to Positive Rating Action - Substantial increase in revenue - FFO fixed charge coverage sustained above 5x (2016: 3.0x) - FFO-adjusted net leverage sustained below 3x (2016: 4.8x) Developments That May, Individually or Collectively, Lead to Negative Rating Action - EBITDA margin sustained below 15% (2016:17.8%) - FFO-adjusted net leverage sustained above 5x (2016:4.8x) - Substantial decrease in revenue - Deterioration in working capital flow, which will be evident from longer account receivable days LIQUIDITY Adequate Liquidity: Huiyuan Juice had CNY2.1 billion in unrestricted cash and CNY220 million in available undrawn bank facilities at end-2016. These are sufficient to meet its short-term debt repayment obligation of CNY1.75 billion. However, around 70% of Huiyuan Juice's debt will mature in 2018, and the company is likely to refinance these debts with offshore bond issuance and roll over of its existing bank facilities. 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 5067 3009 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Date of Relevant Rating Committee: 13 July 2017 Summary of Financial Statement Adjustments - Restricted cash pledged to bank loans are treated as readily available Outstanding bonds are adjusted to face value Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Country-Specific Treatment of Recovery Ratings (pub. 18 Oct 2016) here Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Non-Financial Corporates Notching and Recovery Ratings Criteria (pub. 16 Jun 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here 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. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below