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

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:   [phone]
            [phone]
            [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