OREANDA-NEWS. Wanhua Chemical Group Co., Ltd's (Wanhua Chemical; BBB-/Stable) deleveraging is on-track, with its net leverage falling in 1H16 due to strong top-line growth, a solid operating EBITDA margin and low capex, says Fitch Ratings.

We expect the company's net debt/operating EBITDA in 1H16 to be around 3.3x, compared with 4.5x at end-2015, confirming our forecast of the company's deleveraging by end-2016. The company also announced on 13 July that it had received government approval for a CNY 2.5bn private equity offering, which had been announced in November 2015. Fitch expects this to also help lower Wanhua Chemical's leverage once issued.

The company's revenue rose by 24% yoy in 1H16, from a 12% drop in 2015, following the start of its new petrochemical business at the end of 2015. Its operating EBITDA margin eroded to 29.0% yoy in 1H16, from 29.3% in 1H15, but this was within Fitch's expectations due to the contribution from its low-margin petrochemical businesses.

Wanhua Chemical's 200,000 ton polyether polyol started operating on 16 July. This is the key raw material for polyurethane, similar to the company's existing business of methylene diphenyl diisocyanate and toluene diisocyanate, and is a crucial component of its vertically-integrated operation. We expect the company's total revenue in 2016 to increase by 36% yoy to around CNY26,349m.

The company expects to spend CNY3.4bn total capex in 2016, down 35% yoy, with CNY2.3bn spent in 1H16 to build its polyether polyol capacity and 200,000-ton polycarbonates annual capacity, a type of engineering plastic.

Wanhua Chemical's liquidity mainly relies on unused banking facilities of around CNY26.4bn at end-June 2016 and its available cash totalled CNY1.9bn in 1H16, with CNY15.2bn of short-term debt. In addition, the company has CNY2.2bn approved and unused quota for commercial paper issuance as of end-June 2016.