(The following was released by the rating agency)
HONG KONG, January 29 (Fitch) Fitch Ratings has assigned China-based Hengdeli Holdings Limited’s (Hengdeli, ‘BB+'/Stable) USD350m 6.25% senior notes due 2018 a final ‘BB+’ rating.
The assignment of the final rating follows the receipt of documents conforming to information already received. The final rating is in line with the expected rating assigned on 16 January 2013. The ratings reflect Hengdeli’s exposure to cyclical demand for watches and inventory risk.
The ratings also reflect its leading market position in the Swiss watch retail sector in China, its exclusive watch distribution arrangements for selected Swiss brands, its established distribution network and lean cost structure.
The Stable Outlook reflects Fitch’s expectation that Hengdeli will maintain its current sound financial position and that its inventory days will gradually normalise after increasing to more than 220 days during H112. The expected improvement is based on the company’s move to cut back on orders and adjustments to its product mix in favour of more fast-moving items.
What could trigger a rating action?
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
-Inventory days being sustained over 220 days
-Funds from operations (FFO) net adjusted leverage rising above 2.75x on a sustained basis (2011: 1.49x)
-Weakening of Hengdeli’s current leading market position
-Material negative change to key distribution agreements with major suppliers
Positive: No positive rating action is expected unless Hengdeli is able to substantially increase its scale without compromising its financial metrics. This is not expected over the next two years.