Moody's downgrades China Oriental

Moody's Investors Service said it downgraded China Oriental Group Co. Ltd.'s corporate family rating and senior debt rating to Caa1 from B2. The outlook is negative.

"The ratings downgrade reflects the heightened level of refinancing risk facing China Oriental given the limited progress so far in addressing the approaching maturity of its $490 million bond in August 2015," Franco Leung, a Moody's vice president and senior analyst, said in an agency news release.

"The company's weak liquidity and the persistent dispute between its two major shareholders add to the refinancing risk."

The agency said given its low cash holdings and inadequate cash flow from operations, China Oriental's ability to tap external funding – via offshore bond markets, onshore bank facilities or discounting bank acceptance notes – is essential to prevent a default on the maturing bond in August.

However, Moody's expects any progress in refinancing the bond to be slow over the next few months. The agency said this expectation means that the company's ability to refinance such a large amount of debt will be highly subject to the conditions in the financial markets, which can be both temporarily volatile and tight.

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