Xinhua Far East China Ratings Confirms the Issuer Rating of Lenovo Group Ltd at A, Outlook Changed to Negative

Xinhua Far East China Ratings Confirms the Issuer Rating of Lenovo Group Ltd at A, Outlook Changed to Negative

March 08, 2006

    HONG KONG, March 8 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings (Xinhua Far East) today confirmed the
issuer credit rating of Lenovo Group Ltd (`Lenovo' or `the
Company', HK 992) at A.  The Company's rating outlook has
changed to negative, however.  This action concludes the
review for Lenovo, which was prompted by the Company's
acquisition of IBM's PC business.

    During the review period, Lenovo's continued strong
performance in the Chinese market, its smooth transition
and better-than-expected results internationally have
allayed some of Xinhua Far East's concerns about the
Company's position.  Nevertheless, its ratings outlook has
been changed to negative in light of risks and
uncertainties in the Company's financial profile, and
considering the ongoing challenges it faces establishing
itself as a leading international player in the highly
competitive personal computer market.

    Xinhua Far East's confirmation of a single A rating for
the Company reflects its leading position in China's
personal computer market - its primary market.  Xinhua Far
East believes Lenovo's strong business profile in this
market is of great importance to its global strategy as it
will generate sustainable cash flow to support its overseas
business expansion.  In the three quarters ended December
2005, Lenovo continuously improved its turnover and
generated steady operating cash inflows, benefiting from
robust domestic sales.

    The rating also acknowledges Lenovo's clearly defined
international strategy and synergies achieved from the
acquisition of IBM's PC business.  By enlarging its product
portfolio and client base, expanding its global distribution
network, improving its management skills and transferring
technology, Lenovo has started to realize synergies from
the acquisition. Xinhua Far East believes that its strategy
of international expansion will be of benefit if it is
successfully implemented, with Lenovo's domestic market
position set to be strengthened as well.

    Nevertheless, the acquisition was mostly financed by
bank loans and share issues and has placed a substantial
debt burden on Lenovo and aggravated its balance sheet.  In
December 2005, Lenovo's gross debt to total capital
increased to 29.1% from negligible financial leverage in
full-year 2004, considering bank loans only. 

    Xinhua Far East also believes there are uncertainties
surrounding the Company's financial structure and the
possibility that its debt ratio will rise in times of
difficulty.  This mainly relates to the substantial amount
of convertible Lenovo preferred shares financed by
strategic investors; these are redeemable and bear
quarterly cash dividend payments. When factoring this in,
Lenovo's adjusted gross debt to total capital rises to
40.1% as of December 2005. 

    Although strategic investors can provide expertise and
financial support in the intermediate term, Xinhua Far East
believes their support in the long run depends on Lenovo's
operating performance.  This creates uncertainties in
Lenovo's financial structure, especially in adverse market
conditions. In the meantime, the Company enjoys strong cash
generation ability and holds a net cash position; this
provides certain financial flexibility and will provide a
cushion in difficult times. 

    The negative ratings outlook also reflects Xinhua Far
East's view that Lenovo faces intense challenges in what is
a highly competitive international personal computer market.
 The Company's performances in other markets, excluding
China, have been very weak, resulting in a lower EBIT
margin of 2.1% in the three quarters ended December 2005,
from 4.1% in full-year 2004.  Xinhua Far East believes it
will take time and energy for the Company to enhance its
competitive edge in the international market. 
Nevertheless, Xinhua Far East understands that Lenovo has
made substantial efforts to boost its product promotion
activities in overseas markets and has embarked on a
strategy to diversify its product mix and compete in the
high-growth emerging markets and the small-to-medium
business market.

    Xinhua Far East will closely evaluate Lenovo's progress
in monetizing the potential synergies and improving its
market position globally and monitor how the integration
will affect Lenovo's operating and financial performance
moving forward.

    Lenovo is principally engaged in the personal computer
business in China. It has the largest market share in China
among its peers and holds the third place in the
international market in 2005.  In the 2004/05 financial
year, Lenovo reported turnover of HKD 22.6 billion and net
profit of HKD 1.1 billion. 
    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 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
the world, Xinhua Finance serves financial institutions,
corporations and re-distributors through four focused and
complementary service lines: Indices, Ratings, Financial
News and Investor Relations.  Founded in November 1999, the
Company is headquartered in Shanghai with 21 news bureaus
and offices in 18 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] or
[phone] 
     Email: [e-mail]

    US
     David Leeney
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings