September 15, 2017 / 7:18 AM / a year ago

Fitch: Huiyuan Juice's Bond Maintains Rating After Tap Issuance

(The following statement was released by the rating agency) HONG KONG/SHANGHAI, September 15 (Fitch) China Huiyuan Juice Group Limited's (B+/Stable) September 2017 issuance of an additional USD50 million 6.5% senior note due 2020 will not affect its 'B+' Long-Term Issuer Default Rating or the 'RR4' Recovery Rating on its bond, says Fitch Ratings. The bond is rated at the same level as Huiyuan Juice's senior unsecured rating as it represents its direct and senior unsecured obligations. Huiyuan Juice's ratings are supported by its strong brand name and long operating history in China's juice market, as well as its efforts in expanding and diversifying its product range internally and through acquisitions. The company's ratings are constrained by its volatile top-line performance, small business scale and high leverage. Headroom on Huiyuan Juice's ratings has decreased following a significant rise in accounts receivable as of end-June 2017, contrary to Fitch's prior expectations. Fitch sees this as a key credit issue, although it is partially mitigated by solid revenue growth and healthy margins in 1H17. Huiyuan Juice's trade receivables balance increased further by around CNY400 million in 1H17, following a sharp rise in 2016. This differs substantially from Fitch's earlier expectation of a reduction in trade receivables - based on communication with management. The discrepancy mainly arose from the factoring in of CNY1 billion in trade receivables, which had been taken off the books in the management accounts but treated as on-balance-sheet under IFRS. We have revised our working-capital assumptions and now expect Huiyuan Juice to maintain its trade debtor days at over 215 days in 2017 in an effort to support downstream distributors. Huiyuan Juice's operating results improved in 1H17, with 4.3% revenue growth and its EBITDA margin expanding to 28% (2016: 18%). The improved margin was driven by better production efficiency, a wider product margin and cuts in general operating expenses. Fitch expects Huiyuan Juice's margins to normalise somewhat in 2H17, but for the EBITDA margin to stay slightly wider than historical levels at 18%. Fitch believes the company should be able to maintain its current coverage ratio at around 3x for the next three years. We also expect net leverage - measured by FFO net adjusted leverage - is likely to remain at 4x, driven by single-digit revenue growth, an improved margin and large working-capital needs. Huiyuan Juice's financial profile is weaker than that of international food and beverage peers rated at 'BB' or above. Its financial metrics are more in line with peers rated in the 'B' category and outrank 'B' rated food peers, such as Premier Foods plc (B/Negative) and Yasar Holding A.S. (B/Stable), with stronger FFO margin, coverage and leverage ratios. Contact: Yee Man Chin Director +852 2263 9696 Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong Li Chen Analyst +86 21 5097 3009 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. 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