Fri, Feb 27, 2009 - Page 11 News List

Ratings revisions at state-run firms raise concerns

By Kevin Chen  /  STAFF REPORTER

The credit quality and ratings outlook for the nation’s state-run companies have been on the analysts’ radar lately, especially after two of these firms suffered downward adjustments in their ratings in the past two days.

Given a deteriorating industry outlook, Taiwan Ratings Corp (中華信評) yesterday downgraded its credit rating for China Steel Corp (中鋼) to “negative” from “stable.”

On Wednesday, Moody’s Investors Service lowered Taiwan Power Co’s (Taipower, 台電) issuer rating to “A2” from “A1,” citing the Taipei-based company’s weakening financial profile and cash-flow- generating capability.

Despite a negative outlook, Taiwan Ratings, the local arm of Standard & Poor’s Ratings Services (S&P), affirmed its long-term “twAAA” and short-term “twA-1+” credit ratings on China Steel, as well as its “twAAA” unsecured corporate bond ratings.

“The outlook revision reflects our expectation that weakening market conditions and China Steel’s somewhat aggressive expansion plans would challenge its ability to maintain credit metrics consistent with its current rating over the next six to 12 months,” Frank Fan (范維康), an associate director of corporate and funds ratings at Taiwan Ratings, said in a statement.

Dragged by weak demand and aggressive inventory writedowns, China Steel saw its first quarterly pretax loss in more than 30 years in the fourth quarter of last year, when it reported a loss of NT$18.26 billion (US$524.7 million). For the whole of last year, the firm saw NT$30.26 billion in profits, a 50.93 percent drop from the previous year, China Steel said on Feb. 9.

To cope with the industry downturn, China Steel announced on Feb. 17 it was cutting domestic steel prices by an average of 14 percent in the second quarter, following an average cut of 22.56 percent it announced in November for the first quarter.

Taiwan Ratings believes the adverse market conditions would continue to challenge China Steel’s profitability and cash flow in the coming quarters.

“We may lower the ratings by one notch if a prolonged industry downturn or heavy debt-funded capital expenditures weaken the company’s credit metrics,” Fan said.

The global economic slowdown prompted the government to cut its GDP forecast this year to a decline of 2.97 percent, from an earlier estimate of 2.12 percent growth.

To reflect this negative economic development, Moody’s lowered its ratings on Taipower on projections that domestic power demand would fall and it would incur additional debt because of its capital expenditure plan.

Moody’s said its ratings outlook for Taipower remained stable, but the credit downgrade was likely to affect its approximately NT$250 billion in debt securities.

On Jan. 20, Fitch Ratings also lowered its outlook on CPC Corp, Taiwan’s (台灣中油) AA long-term local-currency rating to “negative” from “stable” amid concerns over rising risks on its NT dollar debts.

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