TEXT-Fitch Revises Winsway's Outlook to Negative on Profit Warning
(The following was released by the rating agency)
HONG KONG, July 18 (Fitch) Fitch Ratings has revised Winsway Coking Coal Holdings Ltd's (Winsway) Outlook to Negative from Stable, due to its worse-than-expected performance resulting from current coking coal price volatility. The agency has also affirmed Winsway's Long-Term Foreign Currency Issuer Default Rating (IDR) and its senior unsecured rating at 'BB' respectively.
Winsway warned on 17 July 2012 that the company will record a loss for H112, mainly due to lower coking coal prices on weakening demand from steel mills and coke plants under sluggish economic conditions. The company has adopted a strategy of lowering inventory levels to improve its cash balance and to fend off difficult market conditions. Winsway's financing costs for H112 are also higher, albeit one-off, because of its Grand Cache Coal acquisition which concluded in March 2012.
Fitch views that Winsway's destocking, while increasing cash at hand, could hurt profitability in a declining price market as a result of the depletion of higher-cost inventory. Further, the agency does not expect Winsway's current operation to be flexible enough to fully defend itself from a sluggish steel industry. Fitch expects Winsway's profitability and cash generation capability will be affected if coking coal demand does not recover and put a floor under prices.
The ratings may be downgraded if sluggish coking coal demand continues to cause earnings volatility and to impinge on its cash generation capability on a sustained basis. The Outlook may be revised back to Stable if the company is able to manage the industry downturn and hold up its profitability in spite of a difficult operating environment.
HONG KONG, July 18 (Fitch) Fitch Ratings has revised Winsway Coking Coal Holdings Ltd's (Winsway) Outlook to Negative from Stable, due to its worse-than-expected performance resulting from current coking coal price volatility. The agency has also affirmed Winsway's Long-Term Foreign Currency Issuer Default Rating (IDR) and its senior unsecured rating at 'BB' respectively.
Winsway warned on 17 July 2012 that the company will record a loss for H112, mainly due to lower coking coal prices on weakening demand from steel mills and coke plants under sluggish economic conditions. The company has adopted a strategy of lowering inventory levels to improve its cash balance and to fend off difficult market conditions. Winsway's financing costs for H112 are also higher, albeit one-off, because of its Grand Cache Coal acquisition which concluded in March 2012.
Fitch views that Winsway's destocking, while increasing cash at hand, could hurt profitability in a declining price market as a result of the depletion of higher-cost inventory. Further, the agency does not expect Winsway's current operation to be flexible enough to fully defend itself from a sluggish steel industry. Fitch expects Winsway's profitability and cash generation capability will be affected if coking coal demand does not recover and put a floor under prices.
The ratings may be downgraded if sluggish coking coal demand continues to cause earnings volatility and to impinge on its cash generation capability on a sustained basis. The Outlook may be revised back to Stable if the company is able to manage the industry downturn and hold up its profitability in spite of a difficult operating environment.
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