Xinhua Far East Downgrades Anyang Iron & Steel to BBB-; Outlook Stable

Xinhua Far East Downgrades Anyang Iron & Steel to BBB-; Outlook Stable

July 19, 2006

    HONG KONG, July 19 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings today downgraded the issuer credit
rating of Anyang Iron & Steel Co., Ltd.
("AYIS" or "the Company", SH A 600569)
from BBB to BBB-; the Company's rating outlook remains
stable.

    The rating action incorporates Xinhua Far East's view
that the nearly three-year delay in AYIS' new construction
project has hindered its production expansion and weakened
its industry position, with forecasted project returns now
overshadowed by an abundance of complementary products in
the market. Xinhua Far East is also concerned about the
Company's financial management and information disclosure
following the embezzlement by its brokerage of government
bonds that AYIS had purchased. The downgrade also reflects
the company's rising gearing ratio and falling profit
margins in the continuously challenging market. 

    AYIS had planned to increase its high-end production
capacity to enhance its product mix as early as 2001;
however, this project had been postponed due to
archaeological issues. Although AYIS' new production
project (able to produce 1.1 million tons of hot-rolled
steel sheet/coil annually) was 90%-complete by the end of
2005, the number of competing products in China's market
has already risen substantially, restricting the margins
AYIS will be able to place on new products. 

    One key issue affecting the Company involves RMB180
million of unused project funds that were used by AYIS to
buy government bonds in 2002 and were subsequently
embezzled by its brokerage firm. While the matter is still
under investigation, it is uncertain whether the funds will
be recovered. AYIS made a RMB54 million provision in 2005
for failed investment but, if the funds are not returned in
2006, the Company will have to make a second provision for
the remaining RMB126 million. This would negatively affect
its net profit.

    Importantly, this incident has revealed inadequacies in
the Company's financial management and risk control
practices. Given that the Company did not disclose details
of the matter until the end of 2005 -- much later than the
actual embezzlement -- its information disclosure practices
are clearly in need of improvement.

    Another issue affecting the Company is the sharp rise
in capital expenditures in 2005, with its net cash outflow
from investing activities totalling RMB 3.2 billion,
compared with net cash inflow from operations of RMB 627
million. The Company has had to rely on external financing
to a great extent, thus causing its gross debt to total
capital ratio to rise sharply to 32.4% in 2005 from 7.2% in
2004.

    Under the adverse operating environment in 2005, AYIS'
profitability also declined sharply, with gross margin and
EBIT margin declining to 7.7% and 3.7% respectively from
12.3% and 7.9% in 2004. As new capacity is unlikely to
substantially enhance profitability in a market
characterized by oversuppy, Xinhua Far East has decided to
downgrade AYIS' rating to BBB- from BBB.

    A major steel producer in Henan province, AYIS produced
4.48 million tons of steel products in 2005, of which nearly
60% consisted of low-end long products.

    AYIS is also a constituent of the Xinhua FTSE China 200
Index and, as of market close on July 18, 2006, its total
market capitalization and investable capitalization were
RMB4, 642 million and RMB928 million 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 20 news bureaus
and offices in 19 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
     Taylor Rafferty (IR/PR Contact in US)
     Ms. Ishviene Arora
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings