Xinhua Far East China Ratings Downgrades the Issuer Rating of SGIS Songshan to BB-

Xinhua Far East China Ratings Downgrades the Issuer Rating of SGIS Songshan to BB-

February 23, 2006

    HONG KONG, Feb. 23 /Xinhua-PRNewswire/ - Xinhua Far
East China Ratings (Xinhua Far East) today downgraded the
issuer credit rating of SGIS Songshan Co Ltd (`SGIS' or
`the Company', SZ 000717) from BB to BB-. Its rating
outlook was changed to negative.

    The downgrade was prompted by Xinhua Far East's view
about the adverse impact on SGIS' credit profile of a more
difficult operating environment. Xinhua Far East also notes
that SIGS' worse-than-expected results in 2005 reflected its
weakness in product mix and operating scale, and expects its
performance to stagnate in the adverse market.  The
downgrade also reflected the company's aggressive financial
policy and its limited financial flexibility.

    Xinhua Far East believes the Chinese steel sector is
still experiencing a downturn, prompting the outlook for
the next couple of years to be poor. Aggressive capital
expansion over past few years translated into oversupply in
2005.  As a result, steel prices declined significantly, for
not only long products, but also the previously
import-dependent flat products.  In contrast, the prices
for raw materials, including iron ore and coal, remain at
high levels, squeezing the profits of steelmakers who are
unable to pass the price rises through to consumers.

    Xinhua Far East expects the adverse conditions in the
steel sector in China will worsen, given the heavy capacity
release and falling growth rates in demand from related
downstream industries.  Xinhua Far East also anticipates
mergers and acquisitions will become more frequent in
China's still fragmented steel sector, a development, which
would further challenge the performance of smaller players
like SGIS.

    SGIS' mainly low-value added products and its
relatively small operating scale make it very susceptible
to market risks in downturn periods.  In the first three
quarters of 2005, SGIS' operating cash flow fell
remarkably, as large amounts of working capital were tied
up with mounting inventory.  In the meantime, its net
profit fell 53.2% year-on-year, partly due to the lower tax
rebate benefit but also resulting from its sluggish
performance.  Moreover, Xinhua Far East is concerned that
the company's poor performance will worsen, especially
considering the challenging operating environment.

    Xinhua Far East also notes that SGIS employed an
aggressive financial policy, which led to escalating debt
levels. Over the past few years, SGIS invested heavily in
improving production, but most capital expenditure was
financed with short-term debt due to the pending issuance
of convertible bonds. As a result, SGIS has accumulated
substantial amounts of bank loans, which stood at RMB 5.58
billion as of September 30, 2005. Of this, short-term debt
accounted for as much as 79.8%.  Accordingly, SGIS' gross
debt to total capital rose from 36% in 2003 to 51.6% by the
end of September 2005.  Xinhua Far East expects SGIS' newly
completed capacity and the possible issuance of convertible
bonds will not boost the company's performance materially or
improve its credit profile.

    In fact, in Xinhua Far East's view, SGIS' financial
flexibility deteriorated significantly, given its high debt
level, negative net working capital, and limited cash
reserves.  Xinhua Far East believes it will be difficult
for the company to reverse its weak financial profile in a
couple of years. 

    The rating outlook for SGIS is negative considering the
gloomy market conditions.

    SGIS Songshan Co Ltd is a small-to-medium sized steel
producer in China. The company's core products fall into
deformed bar, wire rod and medium plate. In 2005, SGIS
Songshan produced 3.39 million tons steel products. 

    SGIS Songshan (SZ A 000717) is a constituent of the
Xinhua/ FTSE China 200 Index.  As of market close on
February 22, 2006, its total market capitalization and
investible capitalization were RMB 3.63 bn and RMB 2.73 bn
respectively.   

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

    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
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] 
     Fax:   [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