Fitch: Fufeng outlook negative

Fitch Ratings said it revised Fufeng Group Ltd.'s outlook to negative from stable and affirmed its long-term foreign-currency issuer default rating and senior debt at BB.

The agency said the outlook revision is driven by the sharp escalation of Fufeng's leverage ratio and refinancing risk for Fufeng's RMB 1.02 billion of out-of-the-money convertible bonds, which have a put option on April 1, 2013.

Fufeng's ratio of adjusted net debt to operating EBITDAR increased to 2.59 times in 2011 from 0.57 times at the end of 2010 due to weaker profitability and higher capital expenditure and working capital needs, Fitch said. The agency expects some of these conditions to improve in the second half of 2012, though the scale of improvement is uncertain.

The outlook may be revised back to stable if Fufeng is able to secure refinancing for its convertible bonds and, via a combination of improved profits and reduced working capital, is able to lower its financial leverage to below 2.5 times, Fitch said.

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