OREANDA-NEWS. Fitch Ratings does not expect the share sales by Wuzhou International Holdings Limited's (B-/Stable) chairman and chief executive to a third party to have any immediate impact on the ratings on the company.

Wuzhou said on 20 November 2015 its controlling shareholder Boom Win Holdings Limited (Boom Win) will sell shares priced at a 51% discount to its last traded price on 9 November to a Mr. Sun Hong Bing. Wuzhou's shares were suspended from 9 November to 19 November pending the announcement. Once the share sale is completed, Mr. Sun will own 18.77% of the total share capital of Wuzhou and Boom Win will own 51.14%, down from 69.91%. Boom Win is 60% owned by Wuzhou chairman Shu Cecheng and 40% by his brother and CEO Shu Cewan.

The share disposal has no immediate impact on the 'B-' rating on Wuzhou. However, Fitch will closely monitor the following to determine if any negative rating action should follow:

Change of Control Provisions: The change of control provision on the offshore US-dollar denominated bond due 2018, which allows bond holders to redeem their notes, will be triggered if the chairman, CEO, or their family members, or family trust together own less than 50.1% of voting shares in Wuzhou. The COC will be triggered if the Shu family transfers another 1.04% of shares outside the family, after their shareholding has been reduced to 51.14% by the share disposal.

Should the COC be triggered, Wuzhou will not have sufficient unrestricted cash and undrawn facilities to meet the USD303m needed to repay bond holders, and this may lead to a default on the bond. The company also has a CNY1.7bn (USD265m) short-term loan on its balance sheet as of June 2015, which Wuzhou will need to refinance by June 2016.

Lack of Transparency: The deeply discounted sale of the shares raises uncertainties about Boom Win's plans for the company. The share sale was priced at a 51% discount to the last traded price on 9 November, which was already 30% lower than the weighted average price of the preceding 30 days. The transaction may constrain Wuzhou's near-term access to the equity market. The lack of transparency and communication with investors and business partners could also cast doubt on company's strategy and liquidity position, which will further impact Wuzhou's access to other refinancing channels.

New Shareholder's Impact Unclear: The company did not say if Mr. Sun will hold any management position in Wuzhou. Fitch will monitor the situation for any impact Mr. Sun may have on Wuzhou's strategy and operations.

Wuzhou's 'B-' rating is consistent with Fitch's belief that EBITDA margin will stay below 20% over the next two years as it destocks aggressively, and it will not significantly reduce its debt level. Fitch expects Wuzhou's net debt / adjusted inventory to be sustained around 30% as an increase in investment properties will offset the reduction in development properties to keep the adjusted inventory stable. Wuzhou retains flexibility in liquidity as it has unencumbered investment properties and development properties of CNY8.4bn at end-2014.