OREANDA-NEWS. March 16, 2015. Fitch Ratings has affirmed Sinochem Hong Kong (Group) Company Limited's (Sinochem HK) Long-Term Issuer Default Rating and senior unsecured rating at 'A-'. Sinochem HK's subordinated perpetual securities have also been affirmed at 'BBB'. The Outlook for the IDR is Stable.

The full list of rating actions is at the end of this commentary.

Sinochem HK's ratings are equalised with that of its parent Sinochem Group's, which are two notches lower than China's sovereign ratings of 'A+' with Stable Outlook.


KEY RATING DRIVERS

Strong State Linkage Unchanged: Sinochem Group's strong linkage with the state remains unchanged. Sinochem Group plays a pivotal role in China's supply of chemicals for the agriculture sector, and is crucial the development of the country's agriculture sector. Detailed financial information compiled by the company puts the proportion of its long-term assets in the strategic agrochemical and chemical sectors at about 30%. This does not include its oil & gas assets, including contribution to China's strategic reserves, which are strategic to the state and which account for more than 30% of the company's assets.

Role in Agricultural Modernisation: Sinochem Group's agrochemical operations are the largest horizontally and vertically integrated ones in China, with farmland coverage of 95%. Soil enrichment, farmers' skill development and education, and bio-tech R&D in agrochemicals are all essential tasks performed by Sinochem Group on a quasi-commercial basis in conjunction with the Ministry of Agriculture to meet the primary objective of achieving and maintaining a certain level of food production self-sufficiency.

Past Investments Yielding Results: Sinochem Group's large investments in energy, including oil refinery, and property undertaken by its Hong Kong-listed subsidiary Franshion Properties (China) Limited (Franshion; BBB-/Stable) support its credit metrics. Sinochem Group may scale back future investments in upstream oil & gas assets in the current volatile oil price environment.

Leverage Increase Temporary: Sinochem HK's leverage, measured by FFO adjusted net leverage ratio, stayed at 6.0x at end-2013. We expect this to fall below 4.0x after 2016, supported by contributions from property development and its Quanzhou refinery, which started production in April 2014.

KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Brent oil price of USD55/barrel for 2015, USD65/barrel for 2016, and USD80/barrel thereafter;
- Steady profitability across major segments;
- Capex and acquisition costs of about CNY3bn-4bn each year

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- Positive rating action on the Chinese sovereign
- Stronger linkages between Sinochem Group and the Chinese sovereign

Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Negative rating action on the Chinese sovereign
- Weaker linkages between Sinochem HK and Sinochem Group
- Weaker linkages between Sinochem Group and the Chinese sovereign

The full list of rating actions is as follows:

Sinochem HK
- Long-Term Foreign-Currency IDR affirmed at 'A-'; Outlook Stable
- Foreign currency senior unsecured rating affirmed at 'A-'.

Issued by Sinochem Overseas Capital Company Limited and guaranteed by Sinochem HK
- 4.5% USD1.5bn senior notes due 2020 affirmed at 'A-'
- 6.3% USD500m senior notes due 2040 affirmed at 'A-'

Issued by Sinochem Global Capital Co., Ltd. and guaranteed by Sinochem HK
- 5.0% USD600m perpetual securities affirmed at 'BBB'