(The following was released by the rating agency)
April 27, 2011--Standard & Poor's Ratings Services said today that it had assigned its 'BB' issue rating to the proposed issue of U.S. dollar fixed-rate senior unsecured notes by Chaoda Modern Agriculture (Holdings) Ltd. (BB/Stable/--). The rating is subject to our review of the final issuance documentation. The company intends to use the net proceeds to finance capital expenditure and for general corporate purposes.
Our rating on Chaoda already factors in a potentially substantial increase in borrowings to fund expansion. In our view, the proposed transaction could strengthen the company's liquidity position and improve its financial flexibility. Despite the increase in Chaoda's debt level, we expect the company's adjusted total debt-to-EBITDA ratio to stay at less than 2.0x and the ratio of total debt to total capital below 25% over the next 12 months. Chaoda has good financial strength for a 'BB'-rated company due to its low leverage, in our view.
Chaoda's exposure to a fragmented market and its very aggressive growth appetite are rating weaknesses. We believe the company's expansion plan has material execution risks that include project uncertainty, potential cost over-runs, and limited management resources. Chaoda aims to acquire new agriculture land equivalent to more than twice its existing planting area over the next five years.
In our view, Chaoda has weak corporate governance and its extensive related-party transactions are a rating constraint. The company buys a substantial amount of its fertilizers from its major shareholder. We also believe that Chaoda has a mixed track record in transparency and information disclosure. We note that the major shareholder's stake, at 19.23% as of Dec. 31, 2010, has steadily declined due to new equity issues. The stake will be further diluted if the outstanding convertible bond is converted into equity.
Chaoda's liquidity is adequate, in our view. As of Dec. 31, 2010, the company was in a net cash position, with Chinese renminbi (RMB) 3.89 billion in cash and cash equivalents, and no short-term debt due. The company has a committed banking facility of about RMB70 million.
Chaoda's established position as an industrialized agriculture enterprise, strong credit metrics, improving financial flexibility, and good geographic diversification temper the rating weaknesses.
RELATED CRITERIA AND RESEARCH
-- Full Analysis: Chaoda Modern Agriculture (Holdings) Ltd., April 6, 2011
-- Corporate Ratings Criteria 2008, April 15, 2008
Keywords: MARKETS RATINGS CHAODA
COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.
April 27, 2011--Standard & Poor's Ratings Services said today that it had assigned its 'BB' issue rating to the proposed issue of U.S. dollar fixed-rate senior unsecured notes by Chaoda Modern Agriculture (Holdings) Ltd. (BB/Stable/--). The rating is subject to our review of the final issuance documentation. The company intends to use the net proceeds to finance capital expenditure and for general corporate purposes.
Our rating on Chaoda already factors in a potentially substantial increase in borrowings to fund expansion. In our view, the proposed transaction could strengthen the company's liquidity position and improve its financial flexibility. Despite the increase in Chaoda's debt level, we expect the company's adjusted total debt-to-EBITDA ratio to stay at less than 2.0x and the ratio of total debt to total capital below 25% over the next 12 months. Chaoda has good financial strength for a 'BB'-rated company due to its low leverage, in our view.
Chaoda's exposure to a fragmented market and its very aggressive growth appetite are rating weaknesses. We believe the company's expansion plan has material execution risks that include project uncertainty, potential cost over-runs, and limited management resources. Chaoda aims to acquire new agriculture land equivalent to more than twice its existing planting area over the next five years.
In our view, Chaoda has weak corporate governance and its extensive related-party transactions are a rating constraint. The company buys a substantial amount of its fertilizers from its major shareholder. We also believe that Chaoda has a mixed track record in transparency and information disclosure. We note that the major shareholder's stake, at 19.23% as of Dec. 31, 2010, has steadily declined due to new equity issues. The stake will be further diluted if the outstanding convertible bond is converted into equity.
Chaoda's liquidity is adequate, in our view. As of Dec. 31, 2010, the company was in a net cash position, with Chinese renminbi (RMB) 3.89 billion in cash and cash equivalents, and no short-term debt due. The company has a committed banking facility of about RMB70 million.
Chaoda's established position as an industrialized agriculture enterprise, strong credit metrics, improving financial flexibility, and good geographic diversification temper the rating weaknesses.
RELATED CRITERIA AND RESEARCH
-- Full Analysis: Chaoda Modern Agriculture (Holdings) Ltd., April 6, 2011
-- Corporate Ratings Criteria 2008, April 15, 2008
Keywords: MARKETS RATINGS CHAODA
COPYRIGHT Copyright Thomson Reuters 2011. All rights reserved. The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.