Fitch Affirms Sinofert at 'A-'; Outlook Stable

Sinofert Holdings

15/08/2018 08:54

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong/Shanghai-August 15: Fitch Ratings has affirmed 
China-based fertiliser company Sinofert Holdings Limited's Long-Term Foreign- 
and Local-Currency Issuer Default Ratings at 'A-'. The Outlook is Stable. The 
agency has also affirmed Sinofert's senior unsecured rating at 'A-'.

KEY RATING DRIVERS

Linkage with Parents Drives Ratings: Sinofert is rated one notch lower than its 
52.65% parent, Sinochem Hong Kong (Group) Company Limited (Sinochem HK, 
A/Stable), reflecting the two entities' strong linkages, and is in line with 
Fitch's Parent and Subsidiary Rating Linkage criteria. Sinochem HK's ratings 
derive from its parent, Sinochem Corporation, which is assessed based on the 
Chinese state's rating (A+/Stable) under our Government-Related Entities (GRE) 
Rating Criteria.

Sinofert is Sinochem HK's sole subsidiary for fertiliser, while Sinochem HK is 
the largest and most important component of Sinochem Corporation's strategically 
important agriculture business, which comprises seed, fertiliser and crop 
protection. Fitch expects Sinofert's parents to continue to support its 
operations. Sinochem Corporation is a key supplier of chemicals for China's 
agriculture industry and is responsible for the research and development of the 
country's seed, fertiliser and crop-protection sectors, which are important for 
upstream food supply. The company also plays a leading role in supplying natural 
rubber products and rubber chemicals to China. 

Pivotal to China's Potash Supply: Sinofert is one of China's largest importers, 
distributors and manufacturers of fertiliser by revenue and volume. Fertiliser 
supply is crucial for the development of China's agriculture sector and of 
strategic importance to the state. Sinofert accounts for about half of the 
country's imports of potash, an important fertiliser. In addition, Sinofert 
plays a leading role in price negotiations with global potash suppliers and 
controls half of China's potash supply. 

Extensive Distribution Network: Sinofert owns over 6,000 distribution outlets 
across China, which cover 95% of domestic arable land. Sinofert not only sells 
fertiliser and pesticides to farmers through this network, but also promotes 
scientific fertilising and agricultural services to drive the development of 
modern agriculture. Soil enrichment, farming skill education and agrochemical 
R&D are also government strategic tasks performed by Sinofert and Sinochem 
Group, the parent of Sinochem Corporation, on a quasi-commercial basis in 
conjunction with the Ministry of Agriculture and Countryside.

Deleveraging after Equity Stake Disposal: We expect Sinofert to have net cash in 
2018, against FFO net leverage of 5.8x in 2017 and 10.4x in 2016. Sinofert sold 
its 20.52% equity stake in Qinghai Salt Lake (000792 CH) to Sinochem Group in 
May 2018 for CNY8.1 billion and plans to use the proceeds for debt reduction. 
Sinofert is gradually shifting to downstream agricultural services, storage and 
fertiliser distribution.

DERIVATION SUMMARY

The one-notch rating difference between Sinofert and Sinochem HK reflects the 
fact that Sinofert does not own some of Sinochem Corporation's strategically 
important agrochemical and chemical assets, such as crop protection, seeds and 
rubber.

KEY ASSUMPTIONS

Fitch's Key Assumptions Within Our Rating Case for the Issuer

- Revenue to increase at 4%-12% per annum during 2018-2021 (17.9% in 2017 and 
-42.7% in 2016)

- Zero volume growth for China's fertiliser usage by 2020 due to government 
restrictions

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating 
Action

- Positive rating action on the Chinese sovereign

- Stronger linkages between Sinochem Corporation and the Chinese sovereign

- Stronger linkages between Sinofert and Sinochem HK

Developments that May, Individually or Collectively, Lead to Negative Rating 
Action

- Negative rating action on the Chinese sovereign 

- Weaker linkages between Sinochem Group and the Chinese sovereign

- Weaker linkages between Sinofert and Sinochem HK

China sovereign rating sensitivities: published on 20 March 2018

The main factors that could lead to negative rating action, individually or 
collectively, are:

- Policy settings that would result in a further build-up of the economy's 
imbalances and vulnerabilities.

- An adverse macroeconomic or financial shock that weakens medium-term growth 
prospects or negatively affects public finances.

- Sustained capital outflows sufficient to erode China's external balance sheet 
strengths, or undermine financial stability.

The main factors that could lead to positive action, individually or 
collectively, are:

- Greater confidence that the debt problem in the broader economy can be 
resolved without a material negative impact to growth or financial stability.

- Widespread adoption of the Chinese yuan as a reserve currency.

LIQUIDITY

Adequate Liquidity: Sinofert had available cash of HKD287 million against 
short-term debt of HKD122 million as of end-2017.

Contact: 

Primary Analyst

Edwin Fan

Director

+852 2263 9958

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road Central, Hong Kong

Secondary Analyst

Stella Wang

Associate Director

+86 21 5097 3026

Committee Chairperson

Laura Zhai

Senior Director

+852 2263 9974

Media Relations: Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935 , Email: 
wailun.wan@fitchratings.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Corporate Rating Criteria (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10023785

Corporates Notching and Recovery Ratings Criteria (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10024585

Parent and Subsidiary Rating Linkage (pub. 16 Jul 2018)

https://www.fitchratings.com/site/re/10036366

Sector Navigators (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10023790

Additional Disclosures 

Dodd-Frank Rating Information Disclosure Form 

https://www.fitchratings.com/site/dodd-frank-disclosure/10041518

Solicitation Status 

https://www.fitchratings.com/site/pr/10041518#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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