February 28, 2017 / 9:20 AM / 9 months ago

Fitch Revises China Fishery's Recovery Ratings to 'RR5' from 'RR4'

(The following statement was released by the rating agency) HONG KONG, February 28 (Fitch) Fitch Ratings has revised the Recovery Rating on China Fishery Group Limited's senior unsecured rating and the rating on the USD300m senior notes issued by its financing vehicle CFG Investment S.A.C. to 'RR5' from 'RR4'. The senior unsecured rating and rating on the notes are affirmed at 'C' and China Fishery's Issuer Default Rating (IDR) has been affirmed at 'D'. The revision of the Recovery Rating reflects a lower valuation assumption for the Peruvian fishmeal operations, as well as Fitch's expectation that China Fishery may not be able to fully recover the prepayments made to its Russian suppliers. In addition, the provision of a debt guarantee by a Peruvian subsidiary to club loan lenders may allow club loan lenders to access funds ahead of senior noteholders. KEY RATING DRIVERS Asset Sale on Hold: China Fishery previously said that the company was considering a sale of its Peruvian fishing operations at an indicative enterprise value of USD1.7bn. Following the company's bankruptcy filing, Fitch believes a sale is no longer likely in the near term. Instead, a key focus of the restructuring plan will be on stabilising the Peruvian operations to maximise value. Fitch views China Fishery's Peruvian anchovy fishing and processing operations as the most important driver of earnings and value among China Fishery's subsidiaries. Peruvian Business Operational: China Fishery's Peruvian fishing business saw its access to funding curtailed after the appointment of China Fishery's provisional liquidators in late-2015, but it has since resumed normal operations. China Fishery caught 100% of its fishing quota in the season ended 27 January 2017 in the important North/Centre region. Fishing is currently under way in the South zone of Peru and China Fishery has caught 14% of its quota to date. LSA Prepayment Recovery Unlikely: Prior to 2014, China Fishery made large prepayments to finance the operations of Russian suppliers under long-term supply agreements (LSA). After the agreements were terminated in early 2014, the company expected to recover the prepayments either in cash or fish stock over the next several years. The company in 3Q15 reported the prepayment balance was USD62m, and it claims to have recovered another USD30m subsequently. Based on recent discussions with the issuer, Fitch does not expect any further amounts to be recovered. DERIVATION SUMMARY China Fishery's IDR is rated at 'D' as the company filed for US bankruptcy protection under Chapter 15 and Chapter 11 of the US bankruptcy code in June 2016. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for China Fishery include: - Peruvian fishing business operates as a going concern. RATING SENSITIVITIES Fitch will re-examine China Fishery's credit profile if it successfully restructures its debt. LIQUIDITY China Fishery has not published financial statements since June 2015. As of June 2015, China Fishery's outstanding debt consisted of a USD129m inventory loan secured by fishmeal inventory, the 9.75% USD300m senior notes issued by CFG Investment S.A.C. due 2019, as well as the USD600m club loan facility, of which USD455m was outstanding. FULL LIST OF RATING ACTIONS China Fishery Group Limited - IDR affirmed at 'D' - Senior unsecured rating affirmed at 'C', Recovery Rating revised to 'RR5' from 'RR4' CFG Investment S.A.C. - USD300m senior notes guaranteed by China Fishery affirmed at 'C', Recovery Rating revised to 'RR5' from 'RR4'. Contact: Primary Analyst Yee Man Chin Director +852 2263 9696 Fitch (Hong Kong) Limited 19F Man Yee Building 68 Des Voeux Road Central Hong Kong Secondary Analyst Yi Zhang Analyst +86 21 5097 3390 Committee Chairperson Kalai Pillay Senior Director +65 6796 7221 Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 27 Sep 2016) here Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 21 Nov 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1019812 Solicitation Status here 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. 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