S&P rates Yue Yuen convertibles BBB-

Standard & Poor's said it has assigned its BBB- issue rating to Yue Yuen Industrial (Holdings) Ltd.'s $300 million zero coupon convertible bond due 2008.

The bond, which has a $50 million over-allotment option, will rank as a direct, unsubordinated, and unsecured obligation of the company. Proceeds from the issue will be used to refinance existing debt and for potential mergers and acquisitions.

S&P said the rating reflects Yue Yuen's leading market position, low cost operations - as a result of economies of scale and low cost production bases - healthy internal cash generation, and strong financial flexibility. These strengths are partially offset by increasing pressure on pricing from Yue Yuen's customers and high customer concentration.

S&P said it also recognize the market and operational challenges Yue Yuen faces in diversifying its product base. The company recently purchased a ladies footwear and sportswear manufacturer and is also seeking to expand the number of its retail outlets in mainland China.

Yue Yuen's total borrowings amounted to $695.8 million at the end of March. Cash on hand totaled $398.6 million.

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