OREANDA-NEWS. Fitch Ratings has assigned Bright Food Singapore Holdings Pte. Ltd.'s EUR400m 1.625% notes a final rating of 'A-'. The notes are to be unconditionally and irrevocably guaranteed by China-based Bright Food (Group) Co., Ltd. (BFG, A-/Stable).

The notes are rated at the same level as BFG's senior unsecured debt rating as they represent direct, unconditional, unsecured and unsubordinated obligations of the company. The final rating follows the receipt of documents confirmation to information already received and is in line with the expected rating assigned on 12 May 2016.

KEY RATING DRIVERS

Strong Linkage with Shanghai SASAC: BFG is credit-linked to Fitch's internal assessment of the creditworthiness of the Shanghai Municipality. The company's linkage with the Shanghai State-owned Assets Supervision and Administration Commission (SASAC) has strengthened significantly following the state's zero-cost injection of Shanghai Liang You Group (LY) into BFG in May 2015. The asset injection, reflecting the Shanghai SASAC's intention to consolidate state-owned food and agricultural resources under its remit, is strong evidence of government support and further enhances BFG's strategic position in food production, supply and distribution, and quality control.

After the asset injection, BFG will be responsible for managing more than 80% of the policy grain reserves and 100% of the policy edible oil reserves in Shanghai. The injection also extends BFG's value chain in upstream grain cultivation and sourcing, logistics and transportation, and downstream retail distribution.

Competitive SOE with Pivotal Role: BFG is of critical importance for social stability and food supply in Shanghai, even though it is classified as a competitive state-owned enterprise by Shanghai SASAC. BFG has a highly strategic mandate to secure sufficient and reliable food supply and stabilise local food prices when necessary. The group supplies around 70% of green vegetables, 90% of fresh dairy, 70% of sugar and 35% of pork in Shanghai. The group also employs about 100,000 workers in the city. Shanghai SASAC is fully committed to maintaining a 100% stake in BFG given its strategic mandate.

High Financial Leverage: BFG's standalone credit profile is assessed to be non-investment grade, constrained by consistent negative FCF and high financial leverage. BFG's net leverage increased in 2015 after acquiring a 76.7% stake in Tnuva, the largest dairy producer in Israel, for about EUR1bn. While BFG's pace of outbound M&A may slow down in the coming years as management focuses on post-M&A integration, we expect BFG to remain opportunistic to capture reliable and good-quality agri-food resources at attractive valuations.

Property Unit to be Self-Funded: BFG injected its property business into one of its publicly listed subsidiaries Shanghai Haibo Co.,Ltd in 2015. The property business, considered to be non-strategic to the group, will have a limited operating scale and will source funding on its own rather than drawing resources from BFG in the future.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for BFG include

- Revenue growth of 9%-12% in 2016-2018

- Mid-single-digit EBITDA margins

- Capex/revenue of 4% in 2016-2018

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

- A positive rating action is likely upon an upgrade of Fitch's internal assessment of the creditworthiness of the Shanghai Municipality.

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- A negative rating action could follow a lowering of Fitch's internal assessment of the creditworthiness of the Shanghai Municipality, or upon evidence of a weakening of BFG's legal, operational and strategic linkages with the Shanghai Municipality.