Xinhua Far East Changes Rating Outlook of Shanxi Taigang Stainless Steel to Positive

Xinhua Far East Changes Rating Outlook of Shanxi Taigang Stainless Steel to Positive

August 01, 2006

    HONG KONG, Aug. 1 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings today changes the rating outlook for
Shanxi Taigang Stainless Steel Co., Ltd.
("Taigang" or "the Company", SZ A
000825) to positive from stable. Its domestic currency
issuer credit rating remains unchanged at BBB-.

    The outlook change is prompted by the prospect that
Taigang's related-party transactions will be substantially
reduced and its production chain will be vertically
integrated following its acquisition of Shanxi Taiyuan Iron
& Steel Group ('the Group')'s steel assets in June 2006.
 The outlook change also reflects Xinhua Far East's view
that more profitable silicon steel and profiled steel
products being acquired can diversity the Company's product
mix and enhance its resilience to economic volatility.  It
also reflects Xinhua Far East's expectation that the
Company's profitability will be enhanced through reduced
related-party transactions and improved product mix. 
Finally, projects under construction will add annual
production capacity of 1.9 million tons of stainless steel,
making Taigang one of the largest stainless steel producers
in the world with leading-edge technology. 

    The reduction of related-party transactions and
vertical integration of its production chain will help
improve both Company transparency and profit margins. 
Taigang's related-party transactions amounted to RMB1.8
billion in 2005 before the acquisition.  The amount will be
substantially lowered by 50.09% on a pro-forma basis
post-acquisition.  Meanwhile, Taigang's production chain
will be enlarged to encompass upstream production through
coking, sintering and iron smelting.  

    The outlook change also reflects Xinhua Far East's view
that the addition of higher-margin silicon steel and
profiled steel products to the Company's product mix
enhances its resilience to economic volatility.  In 2005,
the Company's steel product production increased from 4.54
million tons to 5.13 million tons on a pro-forma basis,
largely a result of the inclusion of silicon steel and
profiled steel output. 

    Xinhua Far East also recognizes the potential that
Taigang will become one of the largest stainless steel
producers in the world after the completion of its 1.9
million ton stainless steel production line.  In addition,
Taigang enjoys relatively high pricing power in the niche
stainless steel sector, which is much more consolidated
than the carbon steel industry. 

    Despite Taigang's huge earning potential, Xinhua Far
East notes several noteworthy risks facing the Company. 
Two areas of concern for the company are the capacity
expansion of other domestic stainless steelmakers and the
Company's competitiveness with foreign steelmakers, upon
whose imports China remains highly reliant.  High
volatility in the price of nickel, one of the primary raw
materials in stainless steelmaking also poses a risk for
the Company's outlook.  Other risks include: 1) Heightened
managerial risks in view of its expanded capacity, more
complicated product mix and larger workforce; 2) Pressures
on cashflow due to large-scale capital expenditure; 3) The
impacts of remaining related-party transactions as it both
buys raw materials and rents land from the Group. 

    Xinhua Far East's future rating actions will depend on
the competitiveness of the Company's stainless steel
products as production capacity expands.  In addition,
Taigang's ability to cope with volatility in the price of
nickel, to manage its enlarged scale and to boost
profitability through extension to deeper processing
products will also be considered.   

    Based in Taiyuan, Shanxi province, Taigang is the
largest stainless steel producer in China.  In 2005, the
Company produced 786,600 tons of stainless steel products
and 4.34 million tons of carbon steel products (including
assets acquired from the Group), both mainly fall into
high-end flat products. 

    Taigang is also a constituent of the Xinhua FTSE China
200 Index and, as of market close on July 31, 2006, its
total market capitalization and investable capitalization
were RMB6,225 million and RMB4,668 million respectively. 

    For the rating report summary, please visit
http://www.xinhuafinance.com/creditrating.

    Note to Editors:

    About Xinhua FTSE China 200 Index

    Xinhua FTSE China 200 Index is the large cap index in
the Xinhua FTSE China A Share Index Series and includes the
top 200 companies in China by market cap.  It is designed as
a tradable index and is calculated in real-time every 15
seconds.  For daily data and further information, see
http://www.xinhuaftse.com .

    About Xinhua Far East China Ratings

    Xinhua Far East China Ratings (Xinhua Far East) is a
pioneering venture in China that aims to rank credit risks
among corporations in China.  It is a strategic alliance
between Xinhua Finance (TSE Mothers: 9399), and Shanghai
Far East Credit Rating Co., Ltd. Shanghai Far East became a
Xinhua Finance partner company in 2003 and the first China
member of The Association of Credit Rating Agencies in Asia
in December 2003.

    Capitalizing on the synergy between Xinhua Finance and
Shanghai Far East, Xinhua Far East's rating methodology and
process blend unique local market knowledge with
international rating standards.  Xinhua Far East is
committed to provide investors with independent, objective,
timely and forward-looking credit opinions on Chinese
companies.  It aims to help investors differentiate the
credit risks among the corporations in China, thereby,
cultivating their awareness and promoting information
disclosures and transparency in China market. 

    For more information, see
http://www.xfn.com/creditrating .

    About Xinhua Finance Limited

    Xinhua Finance Limited is China's unchallenged leader
in financial information and media, and is listed on the
Mothers board of the Tokyo Stock Exchange (symbol: 9399)
(OTC ADRs: XHFNY).  Bridging China's financial markets and
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Company is headquartered in Shanghai with 20 news bureaus
and offices in 19 locations across Asia, Australia, North
America and Europe.  

    For more information, please visit
http://www.xinhuafinance.com . 

    About Shanghai Far East Credit Rating Co., Ltd

    Shanghai Far East Credit Rating Co., Ltd. is the first
and leading professional credit rating company with
comprehensive business coverage in China.  It is an
independent agency established by the Shanghai Academy of
Social Sciences with the mission to develop internationally
accepted standards for capital market in China.  The company
is a pioneer in conducting bond-rating business in China. 
For years, it has been authorized by the Shanghai branch of
the PBOC to undertake loan certificate credit rating.

    Since establishment, it has rated over 1,000 corporate
long-term bonds and commercial papers, based on the
principles of objectivity, fairness and independence.  The
company has also maintained over 50% market share in the
loan certificate-rating sector in Shanghai for three
consecutive years.  With its strong local presence and
knowledge, it provides investors with unique and the most
insightful credit opinion. 

    For more information, see http://www.fareast-cr.com .

    For more information, please contact:

    Hong Kong
     Joy Tsang
     Corporate & Investor Communications Director
     Xinhua Finance
     Tel:   [phone]
            [phone]
            [phone]
     Email: [e-mail]

    US
     Ms. Ishviene Arora
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings