OREANDA-NEWS. Fitch Ratings has placed Hua Han Health Industry Holdings Limited's (Hua Han) Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'BB-', its senior unsecured rating of 'BB-' and the 'BB-' rating on its USD150m senior notes due 2019 on Rating Watch Negative (RWN). This follows the delay in Hua Han's response to allegations that it had inflated its revenue and cash balance, which raises uncertainties over the robustness of the company's corporate governance and internal controls.

KEY RATING DRIVERS

No Response to Allegations Yet: On 11 August 2016 Hua Han halted trading in its shares listed on the Hong Kong stock exchange pending the release of a clarification regarding the negative report from Hong Kong-based Emerson Analytics Co. Ltd. Hua Han has not made further announcements since. Emerson's key allegations are that Hua Han inflated its revenue by three-fold, made questionable transactions and overstated its net tangible assets by HKD2.8bn versus Emerson's assessed value of HKD1.73bn.

Heightened Uncertainty Without Clarification: Until the company successfully refutes these allegations, Fitch is unable to determine the robustness of Hua Han's internal controls and corporate governance.

No Immediate Financial Risk: Fitch believes the risk of Hua Han facing immediate funding shortfall as a result of this event is low. Hua Han's reported cash and equivalents of HKD4bn at end-December 2015 are sufficient to meet its capex needs and payments to all its creditors. The total amount owed to trade creditors and borrowers was HKD1.63bn at end-December 2015 while we estimate Hua Han's additional capex through to 2017 will be no more than HKD1.2bn.

RATING SENSITIVITIES

Fitch expects to resolve the RWN once Hua Han responds to the allegations. The RWN will be removed and the ratings and Outlook affirmed at previous levels if the allegations are convincingly refuted in a timely manner. Any extended delay or failure to adequately address key allegations may result in a negative rating action.