Xinhua Far East China Ratings is said to be reviewing the credit rating of Fuyao Group Glass Industry (Fuyao) – currently BB+ – for a possible upgrade.
The rating was prompted by forecasts announcing…
Xinhua Far East China Ratings is said to be reviewing the credit rating of Fuyao Group Glass Industry (Fuyao) – currently BB+ – for a possible upgrade. The rating was prompted by forecasts announcing that Fuyao“s capital expenditure will slow and its operating cash flow will improve due to its stronger position in the domestic and global auto glass markets. Further support to the rating profile could come from a proposed private placement to Goldman Sachs since it would improve its debt repayment capacity. The company has now completed major production bases for the auto producer market, with its investments in auto glass capacity expected to slow after its production plants in Beijing and Guangzhou start operation in 2007. There are, however, still some concerns over ongoing capital expenditure in its float glass lines in Hainan Province, especially considering the company“s historically aggressive investment record. Fuyao“s cash flow status has improved over the past nine quarters, and is expected to continue as a result of the company“s strengthening market position. Revenues from its auto glass segment, which were 74.3% of total revenues in 2006, rose from RMB 1,064.2 million in 2002 to RMB 2,888.9 million in 2006. Growth of this segment came both from domestic sales as well as global OEM business. Domestic sales increased thanks to growing auto sales and the company“s leading market share. Fuyao has also passed the verification process of major world-class auto manufacturers, including Ford and GM. Its profit margins have remained comparatively stable, with its operating efficiency improving slightly despite strong downstream competition, wavering domestic demand for sedans and RMB appreciation.