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China Fishery Facing Downgrade Risk As Anchovy Buy Boosts Debt
Corporate Digest | 07 March 2014
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China Fishery Group, the biggest anchovy-quota holder in Peru following its acquisition of Oslo-listed Copeinca ASA, may be downgraded after the buyout sent its debt levels soaring.

The Hong Kong-based company is seeking to refinance about US$355 million bridge loan which part-funded the purchase and is due to be repaid at the end of the month, according to Moody’s Investors Service. Although yields on China Fishery’s bonds are falling, Moody’s put its B1 rating, four levels below investment-grade, on review for downgrade on 12 February, citing the lack of a binding deal with lenders.

Asian companies including Thai Beverage Public Company and Global A&T Electronics were downgraded by Moody’s and Standard & Poor’s (S&P) last year as asset acquisitions resulted in debt and refinancing concerns. China Fishery, backed by private equity firm Carlyle Group LP, had US$578 million of debt at the end of 2013 which may have to be repaid within 12 months, according to an exchange filing.

China Fishery is “making progress” on refinancing the bridge loan, finance director Chan Tak Hei said by phone from Hong Kong on 27 February, declining to elaborate citing disclosure rules. The company aims to complete the refinancing this month, according to an 11 February stock exchange filing.

Copeinca, which has a secondary listing in Lima, produces fishmeal and fish oil from anchovies caught off South America’s coast. China Fishery bought the company in August in a deal which valued it at about US$782 million at the time. The purchase was funded by a one-for-one stock rights offering in April and a bridge loan from DBS Group Holdings and Rabobank International.

“Remain Concerned”
Fitch Ratings said in a statement dated 23 February the company’s liquidity situation remains “manageable”. China Fishery has sufficient commitments from lenders, S&P said on 12 February.

“The company continues to generate cash flows and therefore it’s less likely for the bridge-loan lenders to pull the credit line at this moment,” Lim Su Aik, an analyst at Fitch, said in a 27 February interview in Singapore. “We remain concerned with its high leverage as a result of the Copeinca acquisition. This needs to be resolved.”

The Copeinca deal pushed China Fishery’s net debt to more than three times its earnings before interest, tax, depreciation and amortisation, Fitch estimated in August. Fitch has kept its BB- rating outlook on the company at negative, since lowering it from stable in July 2013.

High Leverage
China Fishery’s 9.75 percent notes due July 2019 have returned 4.3 percent this year through 27 February as yields fell 63 basis points to 10.06 percent, Bloomberg-compiled prices show. The bonds have gained 14.4 percent since the Copeinca acquisition closed in August.

“We’re neutral on the 2019 bonds,” Amit Jain, a credit analyst in Bangalore at SJS Markets, said by e-mail on 27 February. “The company seems quite confident of refinancing the bridge loan by the end of March. But the leverage is still very high and we’d like to see the company realising the cost benefits from the Copeinca acquisition before we upgrade it.”

China Fishery reported a 34.4 percent increase in revenue to US$145.2 million for the first quarter ended 28 December, 2013, after consolidating Copeinca’s business. Revenue from its contract supply unit, which accounted for 41 percent of the total, slumped 34 percent due mainly to lower sales volumes.

“There are some red flags in the latest results, where the contract supply business generated the lowest first-quarter revenue compared to past years,” Fitch’s Lim said. “That’s something worth watching.”

Shares in Singapore-listed China Fishery are little changed this year at $0.385. The stock has slumped 75 percent since June 2010 when the Carlyle Asia Partners III LP fund invested about $210 million (US$166 million) buying 113.5 million new shares at $1.85 each, plus 26.7 million warrants. The fund’s equity holding rose to 202 million shares, or an 11 percent stake, after a rights offering last year.

China Fishery Group  -- -- --   
Business: An integrated industrial fishing co managing fishing vessels, sells marine catch & produces fish products. [FY14 Turnover] Peruvian fishmeal (68.9%), contract supply (24.4%), china fishery fleet (6.7%).

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