Mon Aug 25, 2014 9:31am GMT

(The following statement was released by the rating agency) HONG KONG/SINGAPORE, August 25 (Fitch) Fitch Ratings says today that giving bondholders of Corporacion Pesquera Inca SAC (COPEINCA, B+/Stable) one more month to decide if they consent to changes in the bond indenture will not impact Fitch' s ratings on its parent China Fishery Group Limited (China Fishery BB-/Negative). The Chinese company' s fundamentals remain strong and as a result, the risk of it facing immediate liquidity issues from this event remains low. The purpose of the consent solicitation is to remove the restriction on Copeinca ASA, COPEINCA' s parent, and the operating entities under it from guaranteeing debts of China Fishery Group. China Fishery acquired Copeinca ASA, a major anchovy-quota holder in Peru, in 2013. The extension of the consent solicitation to 17 September 2014 reflects the reluctance of COPEINCA bondholders to agree to the amended indenture at the current consent fee of 1%. In general, the process to win consent from bondholders can be lengthy and often requires several iterations of the offer. In the event bondholders refuse to give consent regardless of terms, China Fishery would have to refinance the COPEINCA bonds immediately. The risk of both the consent solicitation failing and COPEINCA' s creditors refusing to give China Fishery any grace period to seek refinancing for the bonds is low. China Fishery' s operation remains cash generative and it is likely to generate positive free cash flow to help in its deleveraging. Revenue for the nine months to 30 June 2014 increased by 13.4% from a year earlier and EBITDA margin increased to 44.5% from 43.2%, primarily due to higher revenue contribution and cost savings from the enlarged Peruvian fishmeal operations, which offset the thinner trading margins from the spot purchase business in Russia. Fitch expects the underlying earnings profile of China Fishery to strengthen given the firm demand for fishmeal, a staple needed for aquaculture globally, and savings to be realised from the further consolidation of its enlarged Peruvian business. The refund of a total US$241.5m from a long-term supply agreement (LSA) with its Russian suppliers is on track. China Fishery received US$80m in June 2014 and it expects to receive another US$60m by the end of the current fiscal year on 30 September 2014 (FY14) with the remaining to be fully paid by end of FY16. Its inventory of USD183m at end-June 2014 will be partly liquidated by the end of FY14 as the fishing season enters its lowest point. This cash release together with the LSA refund might drive China Fishery' s FY14 net leverage to below 3.5x if management continues to deleverage. China Fishery' s ability to generate positive free cash flow of about USD90m from FY15 will help the company reduce its leverage to below 3.0x by FY16.