2007'02.01.Thu
Xinhua Far East China Ratings Downgrades the Issuer Rating of BOE Technology Group Co., Ltd. to B£» Outlook Changed to Negative

April 06, 2006

HONG KONG, April 6 /Xinhua-PRNewswire/ -- Xinhua Far East China Ratings (Xinhua Far East) today downgraded the issuer credit rating of BOE Technology Group Co Ltd ("BOE" or "the Company", SZ A 000725, SZ B 200725) to B from BB. The Company's rating outlook has been changed to negative. The downgrade reflects Xinhua Far East's view that it will be challenging for BOE to sustain its development in the highly risky TFT-LCD manufacturing sector in the long-term. Meanwhile, BOE has a track record of tolerating high debt levels and adopting aggressive expansion policies. In addition, unfavorable market conditions, as well as the Company's tremendous refinancing needs, challenges in cost controls and difficulties in local sourcing, have made BOE's credit profile highly vulnerable. In Xinhua Far East's opinion, BOE is engaging in a highly risky and cyclical sector, which is very capital- and technology-intensive. BOE also faces heightened competition from its large international peers, which have completed more 6th and 7th generation production lines, offsetting market demand, resulting in depressed product prices overall in 2005. Xinhua Far East believes that given the industry nature, BOE has very limited flexibility in holding back its capital expenditures. The Company must invest further, or else all previous investments will evaporate. Xinhua Far East anticipates it will be difficult for BOE to sustain its development in the long run given its constraints in capital and technology, operating experience and risk control capability relative to its international peers. The downgrade reflects BOE's track record of tolerating high debt levels and adopting aggressive expansion. BOE relies heavily on bank loans for expansion and capital expenditures. The Company's gross debt to total capital increased from 49.0% in 2002 to 74.2% by the end of 3Q05. The downgrade also takes into account BOE's plans to build higher generation production lines in the future. The downgrade action factors in the heavy losses stemming from BOE's core operations which can hardly turn around amid an unfavourable market environment. Compounding with its EBIT margin of negative 12.7% and net operating cash flow of negative RMB773 million in 1-3Q05, BOE said it expects to report a net loss of RMB1,600 million in full-year 2005 and continuing net loss of RMB500 million in the first quarter of 2006. Nevertheless, Xinhua Far East acknowledges that BOE's strategic investment in its associate company TPV Technology Limited ("TPV", 903 HK) partially secures its downstream market position. With BOE's injection of OTPV and the involvement of Philips, TPV's business will see significant benefits, which in turn will benefit BOE. But despite being its largest shareholder, BOE has limited control over TPV, leaving BOE itself to shoulder the mounting debt and operating risks of the TFT-LCD business. Xinhua Far East also notes that BOE's plan for an H shares offering to raise USD400 million will only slightly alleviate its debt burdens. Even if BOE succeeds in the share offering given its loss performance, the offering will only reduce BOE's debt level by about 10% based on its 3Q05 financials. Going forward, Xinhua Far East's rating action for BOE will depend on its: 1) capital expenditure plan for higher production lines and other investments; 2) operating results and cost control ability; 3) cash generating ability. BOE is one of the largest display device manufacturers in China. Its main products are TFT-LCD panels used for TV sets and PC monitors. As of the end of February 2006, BOE held a 22.26% stake in TPV Technology Limited. In 2004, BOE's turnover reached RMB12.4 billion. OTPV was a joint venture company invested by BOE and TPV to produce displayers. It accounted for 35.3% of BOE's turnover in 2004. BOE is a constituent of the Xinhua/ FTSE China 200 and B35 Indices. As of market close on April 5, 2006, its total A-share market capitalization and investable capitalization were RMB3.3 billion and RMB670 million respectively. Its B-share market cap totaled USD196 million, of which all is investable. For the rating report summary, please visit http://www.xinhuafinance.com/creditrating . About Xinhua FTSE China 200 and B35 Indices 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. Xinhua FTSE China B 35 Index is the large cap tradable index in the FTSE Xinhua China B Index Series, covering `B' shares listed on the Shanghai and Shenzhen stock exchanges. It provides international investors with exposure to the mainland Chinese market. 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 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: +852-3196-3983 +86-21-6113-5999 +852-9486-4364 Email: joy.tsang@xinhuafinance.com US David Leeney Taylor Rafferty (IR/PR Contact in US) Tel: +1-212-889-4350 Email: david.Leeney@taylor-rafferty.com SOURCE Xinhua Far East China Ratings
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