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Fitch further downgrades China Fishery ratings to 'restricted default'

Tuesday, March 1, 2016 - 16:11

FITCH Ratings has downgraded China Fishery Group's issuer default rating to "restricted default" or "RD" from "C" or what is defined as exceptionally high levels of credit risk where a default is inevitable.

The credit ratings agency said on Tuesday it has not assigned an outlook to China Fishery.

It noted that the company has not paid the scheduled coupon due Jan 30, 2016, on its US$300 million senior notes even after the end of the 30-day grace period on Feb 29.

The non-payment is consistent with an "RD" rating - signifying the uncured expiry of any applicable grace period, cure period or default forbearance period following a payment default on a material financial obligation, it said.

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Meanwhile, China Fishery's senior unsecured rating and the rating on the US$300 million senior unsecured notes issued by China Fishery's financing vehicle CFG Investment SAC have been affirmed at "C", with a recovery rating of "RR4", defined as average recovery prospects given the default.

Fitch said in its note that one of the key rating drivers is access to financing, which has been hampered.

"In November 2015, HSBC filed a winding-up petition against China Fishery, which was subsequently dismissed by the courts. The petition severely curtailed the company's access to funding and thus the company is facing a cash crunch. China Fishery is now in discussions with banks and other creditors to obtain financing, which would allow the company to resume normal operations," it said.

Fitch also noted that according to China Fishery, noteholders representing over 40 per cent of the outstanding amount of its US$300 million senior notes have formed an ad hoc committee. It added that China Fishery is now in discussion with this committee regarding a potential debt restructuring.

Another key rating driver is the sale of the group's Peruvian business.

China Fishery announced last December that it had received non-binding memorandums of understanding from two prospective buyers for its Peruvian business at an indicative enterprise value of US$1.7 billion.

"Fitch believes that in the event of a successful sale at the suggested valuation, the proceeds should be more than sufficient to cover all of the company's outstanding debt."

Fitch said if China Fishery enters the bankruptcy process, a further downgrade in ratings from RD to "D", which stands for default, might happen. But the agency said a successful debt restructuring or the sale of the Peruvian business could lead to positive rating actions.

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