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Fitch Publishes Sinochem International's Rating at 'BBB+'
July 12, 2017 / 6:35 AM / 5 months ago

Fitch Publishes Sinochem International's Rating at 'BBB+'

(The following statement was released by the rating agency) SHANGHAI/HONG KONG/SINGAPORE, July 12 (Fitch) Fitch Ratings has published Sinochem International Corporation's (SIC) Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at 'BBB+'. The Outlook is Stable. KEY RATING DRIVERS Strong Linkages with Parent: SIC is rated one notch down from 55.76% parent Sinochem Group, which is in turn rated two notches lower than China's sovereign ratings (A+/Stable) - in line with Fitch's parent and subsidiary rating criteria. SIC is the most important branch for the group's chemical segment - representing approximately 50% of revenue and a 90% net profit contribution to the group's chemical segment in 2016. Sinochem Group's chemical business is one of the five major operating segments of the group. SIC is also the only subsidiary within the group for crop protection sales and production, natural rubber, rubber chemical and chemical logistics, all of which have strong operational and strategic ties with the state. Global Leader in Natural Rubber: SIC's acquisition of Halcyon Agri Corp (Halcyon), a Singapore-based natural rubber supplier, and the restructuring of existing SIC rubber assets into Halcyon, would make the company the world's largest supplier of natural rubber. It would have 35 facilities across Indonesia, Thailand, Malaysia, China and Africa combined with a leading global distribution network and total annual processing capacity exceeding 1,400,000 tons. Fitch believes that Halcyon will not only diversify SIC's natural rubber production/processing capabilities but also secure additional plantations across different geographic regions. Strong Ties with Agro-Chemical: SIC has close operational and strategic ties with the state, reflected by its participation into government-assigned tasks and active engagement in the industry consolidation with a view to enhance the weak domestic sector. Furthermore, SIC is the largest entity for the group's agro-chemical business, being the only subsidiary owning the operations for agrochemical sales and production. This segment is an indispensable part of the group's strategy to become a vertically integrated agriculture corporation, with business coverage from seeds to fertilizer and agro-chemical. Its linkage is further enhanced by the group's intention to build SIC as the only agro-chemical platform by investing in more R&D in the future. Dominant in Rubber Anti-Degradants: SIC has a global market share of over 40% for PPD, a major rubber anti-degradant in China, through its 61%-owned subsidiary Jiangsu Sinorgchem Technology Co., Ltd (Sinorgchem). Sinorgchem's leading market position is supported by high barriers to entry in terms of industry experience and intellectual property. Sinorgchem and Solutia Inc. are the only two companies on a global scale owning the entire intellectual property rights for producing 4-ADPA, a chemical intermediate to produce rubber anti-degradants. China's Largest Chemical Logistics Provider: SIC is the largest international standardised liquid chemical products logistics provider in China, controlling a fleet of 73 tankers with a capacity of over 1,230,900 tons. It is also the largest government-assigned logistics provider for dangerous liquid chemical products, and the only shipping company to deliver TDI/MDI and other high-end and dangerous liquid chemical products. Moreover, its strong operational ties with the state are reflected by its participation in the national standards drafting assigned by the Ministry of Transportation. DERIVATION SUMMARY SIC's ratings are comparable with that of fellow Sinochem Group subsidiary Sinofert Holdings Limited (BBB+/Stable), which is rated top down one notch from Sinochem Hong Kong Group) Company Limited (A-/Stable). Sinofert's fertilizer business and SIC's crop protection/agro-chemical business are the two main pillars of the group's agricultural segment, which share equal levels of strategic and operational importance. KEY ASSUMPTIONS - Operating EBITDA margin to remain around 7% in 2017 and 2018. - No major M&A RATING SENSITIVITIES Future developments that may, individually or collectively, lead to positive rating action include: - Positive rating action on the China Sovereign - Strengthening linkage between Sinochem Group and China Sovereign - Strengthening linkage between Sinochem International and Sinochem Group Future developments that may, individually or collectively, lead to negative rating action include: - Negative rating action on the Chinese sovereign - Weakening linkage between Sinochem Group and Chinese sovereign - Weakening linkage between Sinochem International and Sinochem Group LIQUIDITY SIC had readily available cash of CNY7.2 billion at end-2016 against CNY11.2 billion in short-term debt. The company has about CNY39 billion in unused banking facilities, and also access to Sinochem Group's central treasury. Contact: Primary Analyst Laura Zhai Director Fitch (Hong Kong) Limited 19/F Man Yee Building 68 Des Voeux Road Central, Hong Kong +852 2263 9922 Secondary Analyst Charles Li Analyst + 86 21 5097 3016 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email:; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: Additional information is available on Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here Solicitation Status here#solicitation Endorsement Policy here 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. 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