OREANDA-NEWS. Fitch Ratings says that Chinese chemical producer Wanhua Chemical Group Co., Ltd. (Wanhua Chemical; BBB-/Stable) will be able to deleverage significantly in 2016 despite weaker-than-expected performance in 1H15. The deleveraging will be driven by higher sales volume, reduced capex and lower dividend payouts.

Wanhua Chemical's revenue fell 14% yoy in 1H15 due mostly to a reduction of trading revenue from petrochemical products and lower average selling prices (ASP) for its core methylene diphenyl diisocyanate (MDI) products, which offset the rise in overall sales volume due to capacity expansion. The company continues to demonstrate its ability to maintain healthy margin levels - gross profit margin of 33.1% in 1H15 versus 30.4% in 1H14 - amid difficult economic conditions.

Funds flow from operations (FFO)-adjusted net leverage increased to around 5.0x (4.6x in 2014), which was within our expectation, as a result of high capex to complete its Yantai industrial park project.

With the new project commencing production in August, we expect to see much higher sales in 2016. This, coupled with a large reduction in capex, as well as a sustained lower dividend payout rate (CNY0.30 per share in 2014 compared with CNY0.70 in previous years) as indicated by the company, will result in FFO-adjusted net leverage trending down toward 4x by the end of 2016.