Fitch puts Honghua on positive watch

Fitch Ratings said it placed Honghua Group Ltd.'s long-term foreign-currency issuer default rating of CCC on Rating Watch positive.

The company’s senior unsecured rating of CCC with a recovery rating of RR4 also was placed on positive watch.

The watch follows the Dec. 20 news that Honghua has agreed to issue new shares to China Aerospace Science and Industry Corp. and Beijing Jianhong Capital Management Co. Ltd. for total estimated net proceeds of HK$1.6 billion, Fitch said.

The proposed equity placement significantly improves Honghua's ability to roll over its short-term debt, given the credibility of China Aerospace, who would become Honghua's largest shareholder with 29.99% of the enlarged capital, the agency explained.

China Aerospace is wholly owned by the Central State-Owned Asset Supervision and Administration Commission and is the main contractor for China's space program, Fitch said.

The proposed placement also will immediately improve Honghua's balance sheet as the company stated its intention to use half of the net proceeds for debt reduction with the remainder used for working capital purposes, the agency said.

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