2007'02.01.Thu
Xinhua Far East Downgrades IMEC to BBB- Credit Rating, Rating Outlook Changes to Negative

March 29, 2006

HONG KONG, March 29 /Xinhua-PRNewswire/ -- Xinhua Far East China Ratings today downgraded the domestic currency issuer credit rating of Inner Mongolia Eerduosi Cashmere Products Co., Ltd. ("IMEC" or "the Company", SH A 600295, B 900936) from A to BBB-. The rating outlook has been changed to negative. The rating changes reflect increasing competition in the cashmere industry, where processing capacity significantly outweighs demand. Xinhua Far East notes that IMEC is still competing at the low-to-medium end of the global value chain, making it vulnerable to price changes and sensitive to RMB appreciation. Xinhua Far East also recognizes that IMEC's large-scale investments increase its business risks and will require further capital expenditure and a broadening of managerial expertise. On the other hand, the rating has taken into consideration the Company's position as a global leader in the cashmere industry, its sound relationship with local government and its established relationship with suppliers. IMEC's profit margin has been squeezed by increased competition from the numerous producers of like products, as well as RMB appreciation. The Company's strategy to produce more fashionable garments and develop its brand internationally could help offset competitive and cyclical pressures. However, the Company still faces uncertainties, as such a strategy will take time. In an effort to counter the trend of decreasing profit margins, IMEC has decided to enter into the utility and metallurgy businesses, exploring the natural resources of Inner Mongolia. Its debt level has risen rapidly as a result. At the end of September 2005, the Company's gross debt reached RMB3.8 billion, an increase of 32.4% from the end of 2004. The Company's gross debt to total capital ratio rose to 53.8% at the end of September 2005. The rating outlook for IMEC is negative. There is limited potential for the Company to further expand its cashmere business due to increasing competition, constraints in the supply of raw materials and environmental concerns. The success of IMEC's strategy to move up the value chain depends on how well it develops its brand value and competes in the international market. Furthermore, the Company's investments in power generation and metallurgy projects require large amounts of capital expenditure. The returns on the metallurgy investments are uncertain, given the overcapacity in those markets in which the Company has invested. IMEC is a leader in the global cashmere industry. During the first half of 2005, IMEC realized turnover of RMB1.84 billion. As of the end of June 2005, Inner Mongolia Eerduosi Cashmere Group Co., Ltd. was IMEC's largest shareholder, with a 43.80% stake. IMEC is a mid-cap company constituting the Xinhua/FTSE China 200 and B35 Indices. As of March 28, 2006, its total A-share market cap equaled RMB2.2 billion, with investable market cap of RMB661million. Its B-share market value totaled USD133 million, of which all is investable. For the rating report summary, please visit http://www.xinhuafinance.com/creditrating . Note to Editors: 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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