Fitch downgrades Hengdeli

Fitch Ratings said it downgraded Hengdeli Holdings Ltd.'s long-term issuer default rating to B- from B+ with a stable outlook.

The rating also was removed from Rating Watch negative.

The senior unsecured rating also was withdrawn as the 2018 notes were repaid early.

The downgrades reflect the loss of Hengdeli's position as the market leader in the retailing of Swiss watches in China and a severe shrinkage in operating scale after the disposal of Xinyu Group and Harvest Max, Fitch explained.

The agency said it estimates that Hengdeli's remaining businesses after the disposal of Xinyu Group and Harvest Max accounted for only 20% of sales by the pre-disposal group in 2016, and will generate lower profitability compared with the businesses disposed.

The consolidated group already faced thin EBITDA margin at 4.9% in 2016 as sales declined from persistent market weakness, Fitch said.

The agency said it now expects the company to maintain a high cash balance of more than ¥2 billion due to the disposal proceeds, even after repaying debt, including the 2018 notes, and paying a special dividend related to the disposal.

The remaining operations are likely to generate negative cash flow, which Fitch said it expects to persist through to 2019 because the remaining operations have low profitability or are unprofitable.

© 2015 Prospect News.
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