Xinhua Far East Changes the Rating Outlook of Chongqing Steel to Stable

Xinhua Far East Changes the Rating Outlook of Chongqing Steel to Stable

May 30, 2007

    HONG KONG, May 30 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings today changed the rating outlook for
Chongqing Iron & Steel Co Ltd ("Chongqing
Steel" or "the Company", SH A 601005, HK
1053) from negative to stable. Its domestic currency issuer
credit rating remains unchanged at BBB.

    (Logo: http://www.xprn.com/xprn/sa/200705181620.JPG )

    The outlook change was prompted by the company's
improved financial structure resulting from the completion
of A shares re-issue in the Shanghai market and following a
recovery in China's steel industry since February 2006. The
change also reflects our positive views about the company's
planned new projects which are expected to optimize its
manufacturing process and improve its profitability. Even
so, the cyclical nature of the industry and the company's
relatively small scale prevent it from obtaining a higher
rating at this time.

    Since February 2006, China's steel industry has
undergone a recovery, with strong domestic demand and sharp
growth in exports. The price index for domestic steel
products rose from 77 on January 1, 2006, to 103 on May 17
this year. Our forecasts are that demand for steel will
grow on average by 13% a year between 2007 and 2010.
Despite recent cuts to export tax rebates, the domestic
steel industry should expand steadily over the period,
benefiting from growing domestic demand, rising exports and
controls on new capacity, without the risk of a serious
over-supply.

    Following the completion of A shares re-issue in the
Shanghai market on February 28, in which RMB1 billion was
raised, the company's gross debt to total capital ratio
dropped from 42.4% in 2006 to 37.2% in the first quarter of
2007. The company plans to invest in new projects with total
forecast capital expenditure of RMB2 billion. These include:
an 800,000-ton hot-rolled steel coin project; phase II of a
500,000-ton cold-rolled thin plates project; and a
143,000-ton galvanization plates project. 

    In Xinhua Far East's opinion, these new projects will
optimize its manufacturing processes and improve its
profitability, without boosting its debt ratios
significantly. The company's core product is its
medium-gauge steel plating, which contributed to 43.7% of
total revenue and 86.2% of gross profit in 2006. The
addition of further products would diversify the company's
product concentration risks. Besides, as Chongqing is the
largest motorcycle manufacturing base and an important auto
manufacturing base, the Company's increased cold-rolled thin
plate capacity can be absorbed.

    In December 2004, Chongqing Steel started operating
phase I of its cold-rolled thin plates project, reporting a
gross margin of -14% in 2006 due to the high cost of
outsourcing hot-rolled thin plates. The planned
construction of its 800,000-ton hot-rolled steel coin
project is expected to improve the company's
profitability.

    However, the cyclical nature of the steel industry, the
company's relatively small scale of operation, uncertainties
surrounding the construction of new projects, and the
liquidity risks related to its higher proportion of
short-term debt, prevent it from obtaining a higher rating
at this time. 

    Chongqing Steel mainly produces steel plates, steel
sections and wire rods, with steel plates (mainly used for
shipbuilding, boilers and pressure vessel) the biggest
contributor to revenue and profit. In 2006, the company
produced 2.88 million tons of steel products, 58% of which
was sold in China's south-west. 

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

    Note to Editors:

    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 premier financial
information and media service provider and is listed on the
Mothers Board of the Tokyo Stock Exchange (symbol: 9399)
(OTC ADRs: XHFNY). Bridging China's financial markets and
the world, Xinhua Finance serves financial institutions,
corporations and re-distributors through five focused and
complementary service lines: Indices, Ratings, Financial
News, Investor Relations, and Distribution. Founded in
November 1999, the Company is headquartered in Shanghai,
with offices and news bureaus spanning 14 countries
worldwide.   

    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 nnformation, please contact: 

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

    Scott Zhang
     Tel:   [phone]
     Email: [e-mail]

    US
     Taylor Rafferty (IR/PR Contact in US)
     Mr. John P. Dudzinsky
     Tel:   [phone]
     Email: [e-mail]