Xinhua Far East Upgrades the Issuer Credit Rating of Angang New Steel to BBB+ from BBB

Xinhua Far East Upgrades the Issuer Credit Rating of Angang New Steel to BBB+ from BBB

September 12, 2006

    HONG KONG, Sept. 12 /Xinhua-PRNewswire/ -- Xinhua Far
East China Ratings today upgraded the issuer credit rating
of Angang New Steel Co., Ltd. ("ANSC" or
"the Company", SZ A 000898; HK 0347) from BBB to
BBB+. Its rating outlook remains stable.

    The rating action reflects ANSC's strengthening market
position and marked expansion in production scale following
the acquisition of the remaining steel assets of Anshan Iron
& Steel Group Corporation ("Angang Group").
Consequently, the Company improves both its product
diversification and profitability, allowing it to better
withstand industry cycles. However, ANSC's plans to build
new capacity in the Bayuquan Port will likely raise its
gearing ratio substantially -- a primary factor that
constrains ANSC from obtaining a higher rating.
 
    ANSC's output has almost doubled since its acquisition
of Angang Group subsidiary Angang New Steel & Iron Co.
(`ANSI') and its integration of all remaining Angang Group
steel assets, including upstream products and other end
products. This year, ANSC's steel product production
capacity has risen to more than ten million tons, from six
million tons in 2005. Looking ahead, output should further
increase to 16 million tons, with a new project in the
western district of the Company having commenced operations
earlier this year.

    ANSC now owns a complete steel production line and has
expanded its product mix from five categories to ten. The
new project in the western district mainly adds high-end
products, including hot-rolled sheeting, cold-rolled
sheeting and galvanized sheeting, to its overall product
mix. Adding multiple revenue streams is expected to
stabilize the Company's income throughout industry cycles.


    The Company's profitability has also been enhanced,
with many of ANSI's end products possessing relatively
high-margins and with a substantial reduction in related
third party transactions between parent and subsidiary.
ANSI's financial results, consolidated since January 2006,
show that in the first half of 2006 ANSC's gross margin and
EBIT margin both rose substantially, to 23.4% and 19.2% from
14.1% and 11.1% respectively in 2005. Iron ore from mines
owned by Angang Group meets about 80% of ANSC's demand and
is sold at a preferential price, a factor which also
contributes to the Company's relatively strong
profitability.

    The acquisition was mainly financed through secondary
share offering. Although ANSC is obliged to repay an
additional RMB6.95 billion and interest over three years
from 2006 to 2008, this payment should be manageable, given
the Company's forecasted operating cash inflow of RMB11
billion in 2006.

    ANSC plans to build new capacity in Bayuquan Port in
Liaoning Province, which will boost output of a range of
steel products, including steel plating, hot-rolled steel
sheet and cold-rolled steel sheet, by 4.9 million tons
annually. However, this expansion is expected to stretch
the Company's finances and exacerbate its operational and
financial risks in the coming years. The project budget is
RMB22.6 billion, with RMB8 billion of investment scheduled
for this year, RMB12 billion for next year, and the
remaining RMB2.6 billion for 2008. As of the end of June
2006, ANSC's capital commitments already totalled RMB9.15
billion. Xinhua Far East believes that with limited
operating cash flow, ANSC will have to resort to outside
financing, even though its gross debt to total capital
ratio was 34.2% at the end of June 2006. This should push
the ratio up further in the near future.

    Building new capacity from scratch and operating on a
much larger scale will also challenge its management
capabilities. ANSC is also exposed to volatility in the
steel market, as well as intensifying competition, with all
key industry players planning to expand their production
scales. Changes in macroeconomic policy could also affect
demand for steel, another factor which could weigh the
Company down.

    Even so, Xinhua Far East believes ANSC is in a stronger
position following the acquisition of ANSI, with the planned
new capacity at Bayuquan Port expected to further bolster
its industry position. Xinhua Far East will closely monitor
the funding arrangements for ANSC's new project and consider
any effect on the Company's rating.

    ANSC is a major steel producer in China. In 2005, the
Company produced 6 million tons of steel products. After
the acquisition, ANSC's production capacity of steel
products has increased to more than 10 million tons. 

    Angang New Steel Co., Ltd is also a constituent of the
Xinhua/ FTSE China 200 Index. As of market close on
September 11, 2006, its total market capitalization and
investible capitalization were RMB28.04 billion and RMB5.61
billion 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
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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 Communiations Director
     Xinhua Finance
     Tel:   [phone]
            [phone]
            [phone]
     Email: [e-mail]

    US

     Ms. Ishviene Arora
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   [phone]
     Email: [e-mail]

SOURCE  Xinhua Far East China Ratings