PrintAdd to my bookmarksChinese page
Mandra Forestry Finance Ltd. Ratings Placed On Watch Neg On Increased Credit Risks

 
2008/02/21



Analyst:

Xiaoming Song, Hong Kong, (852) 2533-3503
Ryan Tsang, CFA, Hong Kong, (852) 2533-3532

RatingsDirect publication date: 20-Feb-2008

Disseminated from Standard & Poor's RatingsDirect:
http://www.ratingsdirect.com/

HONG KONG--Standard & Poor's Ratings Services said today that it had placed its 'B-' long-term corporate credit rating on Mandra Forestry Finance Ltd. on CreditWatch with negative implications.

At the same time, Standard & Poor's also placed its 'B-' issue rating on Mandra's US$195 million guaranteed senior notes due May 15, 2013 on CreditWatch with negative implications. "The CreditWatch placements reflect the risk that recent snowstorms in China could put added pressure on Mandra's already weak liquidity profile and underperforming core operations, as reflected in its persistently weak financial results," said Standard & Poor's credit analyst Xiaoming Song.

China's State Forestry Administration said yesterday that the recent winter storms were the largest and longest in more than 50 years and had affected about two-thirds of forestry assets in Anhui province, where most of Mandra's timber assets are located.

Mandra's weak liquidity profile reflects the company's highly leveraged funding structure, consecutive operating losses, and limited access to additional funding due to covenant restrictions.

Mandra's core business activities--acquiring plantations and harvesting--have been significantly delayed because of the difficulties in receiving timely government approval, particularly on harvesting quotas, and the company has lowered its acquisition targets by 30%. For the first nine months of 2007, Mandra made an operating loss of US$5.6 million, following losses of US$4.8 million in 2006 and US$4.9 million in 2005. The company entered into the timber trading business in early 2006 to generate immediate cash flow to compensate for the shortfall in cash flow from harvesting activity. Standard & Poor's views the low-margin timber trading negatively because of its increased counterparty risk.

Mandra has verbally confirmed to us that it has sufficient funds to meet the coupon payment due in May 2008. However, uncertainty remains over the extent to which the snowstorms will affect the company's ability to keep its core business operations on track and to meet its debt service obligations over the next 12 months without affecting the funding of capital expenditure and working capital.

Standard & Poor's will resolve the CreditWatch within the next three months after it meets the management and evaluates the full impact of the snowstorms on the company's future operations and cash flow generation, as well as its liquidity profile. The rating will be lowered if this review
leads us to believe that Mandra's ability to service future debt obligations and/or to comply with covenants is materially impaired and insurance coverage is not available to offer sufficient and timely mitigation for such downside risks. If the company demonstrates otherwise, the rating could be affirmed.

 

Standard & Poor's, a division of The McGraw-Hill Companies (NYSE:MHP), is the world's foremost provider of financial market intelligence, including independent credit ratings, indices, risk evaluation, investment research and data. With approximately 8,500 employees, including wholly owned affiliates, located in 21 countries, Standard & Poor's is an essential part of the world's financial infrastructure and has played a leading role for more than 140 years in providing investors with the independent benchmarks they need to feel more confident about their investment and financial decisions. For more information, visit http://www.standardandpoors.com.

Terms of use: Ratings may not be compiled into a database or systematically distributed or shared for
commercial purposes in a manner that substitutes for a paid Standard & Poorˇ¦s service.

TRC Disclaimer:

Copyright © 2012 by Taiwan Ratings Corporation (TRC). All rights reserved.
No content (including ratings, credit-related analyses and data, model, software or other application or output therefrom) or any part thereof (Content) may be modified, reverse engineered, reproduced or distributed in any form by any means, or stored in a database or retrieval system, without the prior written permission of TRC. The Content shall not be used for any unlawful or unauthorized purposes. TRC and any third-party providers, as well as their directors, officers, shareholders, employees or agents (collectively TRC Parties) do not guarantee the accuracy, completeness, timeliness or availability of the Content. TRC Parties are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, for the results obtained from the use of the Content, or for the security or maintenance of any data input by the user. The Content is provided on an "as is" basis. TRC DISCLAIMS ANY AND ALL EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE, FREEDOM FROM BUGS, SOFTWARE ERRORS OR DEFECTS, THAT THE CONTENT'S FUNCTIONING WILL BE UNINTERRUPTED OR THAT THE CONTENT WILL OPERATE WITH ANY SOFTWARE OR HARDWARE CONFIGURATION. In no event shall TRC be liable to any party for any direct, indirect, incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees, or losses (including, without limitation, lost income or lost profits and opportunity costs or losses caused by negligence) in connection with any use of the Content even if advised of the possibility of such damages.

Credit-related and other analyses, including ratings, and statements in the Content are statements of opinion as of the date they are expressed and not statements of fact. TRC's opinions, analyses and rating acknowledgment decisions (described below) are not recommendations to purchase, hold, or sell any securities or to make any investment decisions, and do not address the suitability of any security. TRC assumes no obligation to update the Content following publication in any form or format. The Content should not be relied on and is not a substitute for the skill, judgment and experience of the user, its management, employees, advisors and/or clients when making investment and other business decisions.. TRC does not act as a fiduciary or an investment advisor except where registered as such. While TRC has obtained information from sources it believes to be reliable, TRC does not perform an audit and undertakes no duty of due diligence or independent verification of any information it receives.

To the extent that regulatory authorities allow a rating agency to acknowledge in one jurisdiction a rating issued in another jurisdiction for certain regulatory purposes, TRC reserves the right to assign, withdraw or suspend such acknowledgement at any time and in its sole discretion. TRC disclaims any duty whatsoever arising out of the assignment, withdrawal or suspension of an acknowledgment as well as any liability for any damage alleged to have been suffered on account thereof.

TRC keeps certain activities of its business units separate from each other in order to preserve the independence and objectivity of their respective activities. As a result, certain business units of TRC may have information that is not available to other TRC business units. TRC has established policies and procedures to maintain the confidentiality of certain non-public information received in connection with each analytical process.

TRC may receive compensation for its ratings and certain analyses, normally from issuers or underwriters of securities or from obligors. TRC reserves the right to disseminate its opinions and analyses. TRC's public ratings and analyses are made available on its Web sites, www.taiwanratings.com (free of charge), and rrs.taiwanratings.com.tw (subscription), and may be distributed through other means, including via TRC publications and third-party redistributors.