Fitch Affirms Sinofert at 'A-'; Outlook Stable

Sinofert Holdings

06/08/2019 02:35

(The following statement was released by the rating agency)


Fitch Ratings-Hong Kong-August 05: 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-'.

Sinofert is rated one notch lower than its parent, Sinochem Hong Kong (Group) 
Company Limited (Sinochem HK, A/Stable), which owns 52.65% of the company, 
reflecting the two entities' strong linkages, in line with Fitch's Parent and 
Subsidiary Rating Linkage criteria. Sinochem HK's ratings are derived 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.

KEY RATING DRIVERS

Parental Linkages Drive Ratings: Sinofert is Sinochem HK's sole fertiliser 
subsidiary, while Sinochem HK is the largest and most important component of 
Sinochem Corporation's strategically important agriculture business, which 
comprises seeds, fertilisers 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 R&D 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 one-third of the 
country's imports of potash, an important fertiliser. Sinofert also plays a 
leading role in price negotiations with global potash suppliers and controls 20% 
of China's potash supply. 

Extensive Distribution Network: Sinofert owns over 30,000 stores across China, 
which cover 95% of domestic arable land. Sinofert not only sells fertilisers 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.

Improving Financial Profile: Sinofert's FFO adjusted net leverage fell to 3.0x 
by end-2018 from 25.8x a year earlier, driven by improved profitability and the 
gain from the disposal of its 20.52% equity stake in publicly listed Qinghai 
Salt Lake Industry Co Ltd (000792 CH) to Sinochem Group. We expect Sinofert's 
revenue to rise at a CAGR of 4.8% and its EBITDA margin to remain at 3.0% in 
2019-2021. Sinofert will maintain low leverage with FFO net leverage staying 
below 2.5x in the next three years due to stable profitability and moderate 
capex commitment.

DERIVATION SUMMARY

Sinofert's ratings are comparable with that of another Sinochem Corporation 
subsidiary, Sinochem International Corporation (SIC, A-/Stable), whose ratings 
are derived from our assessment of its parent. Sinofert's fertiliser business 
and SIC's crop-protection and agrochemical business are the two main pillars of 
Sinochem Group's agricultural segment and they share equal levels of strategic 
and operational importance.

KEY ASSUMPTIONS

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

-    Revenue to increase at 4.8% CAGR during 2019-2021

-    EBITDA margin to stay at 3.0% during 2019-2021

-    Capex of CNY1.0 billion, CNY800 million and CNY800 million in 2019, 2020 
and 2021, respectively

RATING SENSITIVITIES

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

-    Positive rating action on the Chinese sovereign

-    Increased likelihood of state support to Sinochem Corporation

-    Strengthening linkages between Sinofert and Sinochem HK

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

-    Negative rating action on the Chinese sovereign 

-    Decreased likelihood of state support to Sinochem Corporation

-    Weakening linkages between Sinochem Corporation and Sinochem HK

-    Weakening linkages between Sinofert and Sinochem HK

LIQUIDITY

Liquidity Supported by Parent: Sinofert had available cash of CNY1.1 billion 
against short-term debt of CNY3.1 billion as of end-2018. In addition, Sinofert 
had CNY18.9 billion in unused credit facilities and access to Sinochem 
Corporation's central treasury. 

ESG CONSIDERATIONS 

Unless otherwise disclosed in this section, the highest level of ESG credit 
relevance is a score of 3 - ESG issues are credit neutral or have only a minimal 
credit impact on the entity, either due to their nature or the way in which they 
are being managed by the entity. 

For more information on our ESG Relevance Scores, visit 
www.fitchratings.com/esg.

Contact: 

Primary Analyst

Alan Jiang

Associate Director

+852 2263 9989

Fitch (Hong Kong) Limited

19/F Man Yee Building

68 Des Voeux Road Central, Hong Kong

Secondary Analyst

Andrew Shingfun Chan

Director

+852 2263 9559

Committee Chairperson

Laura Zhai

Senior Director

+852 2263 9974

Media Relations: Yee Man Ko, Hong Kong, Tel: +852 2263 9953, Email: 
alanis.ko@thefitchgroup.com; Wai-Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: 
wailun.wan@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria 

Corporate Hybrids Treatment and Notching Criteria (pub. 09 Nov 2018)

https://www.fitchratings.com/site/re/10051058

Corporate Rating Criteria (pub. 19 Feb 2019)

https://www.fitchratings.com/site/re/10062582

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/10085042

Solicitation Status 

https://www.fitchratings.com/site/pr/10085042#solicitation

Endorsement Policy 

https://www.fitchratings.com/regulatory

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