S&P downgrades Shanghai Huayi, Huayi Group

S&P said it lowered the long-term corporate credit rating on Shanghai Huayi (Group) Co. to BBB- from BBB.

The outlook is negative.

The agency also said it lowered the company’s long-term Greater China regional scale rating to cnBBB+ from cnA-.

S&P also said it lowered the long-term corporate credit rating on Huayi Group (Hong Kong) Ltd. to BB+ from BBB-.

The agency also said it lowered the long-term issue rating on the senior unsecured notes that Huayi Group guarantees to BB+ from BBB-.

S&P also said it lowered the company’s long-term Greater China regional scale ratings and the notes to cnBBB from cnBBB+.

The outlook is negative.

The company’s leverage will likely weaken beyond previous estimates, given its still-high capital expenditure in a subdued market, S&P said.

The agency said it anticipates that Shanghai Huayi’s debt-to-EBITDA ratio will increase to more than 5x in the next 18 months, compared with a previous expectation of 3x to 4x.

The company’s higher negative free operating cash flows because of high capital spending and weakened operating profitability also will push up leverage and weaken the balance sheet, S&P added.

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