OREANDA-NEWS. Fitch Ratings has assigned Bluestar Finance Holdings Limited's (Bluestar Finance) USD500m 3.125% senior notes due 2019 and USD600m 3.5% senior notes due 2021 final ratings of 'BBB+' on Rating Watch Positive (RWP). The notes are unconditionally and irrevocably guaranteed by China National Bluestar (Group) Co, Ltd (Bluestar, BBB+/RWP). Bluestar Finance is a fully owned subsidiary of Bluestar.

Bluestar's ratings reflect strong operational linkage with parent, China National Chemical Corporation (ChemChina), China's largest chemical company. Bluestar is 53.77%-owned by ChemChina, which in turn is wholly owned by the State-Owned Assets Supervision and Administration Commission of the State Council (Central SASAC).

The final ratings are in line with the expected rating assigned on 25 September 2016 and follow the receipt of final documents conforming to information already received.

KEY RATING DRIVERS

Parental Linkage Drives Ratings: Bluestar's ratings remain linked to that of its parent, ChemChina. Bluestar consistently receives guarantees from ChemChina for a significant portion of its loans. ChemChina guaranteed 47% of Bluestar's loans as at end-June 2016. Moreover, Bluestar is a key contributor for ChemChina's material science and life-science segments, and operates as a major overseas platform for the parent. Bluestar accounted for 27% of ChemChina's gross profit in 1H16.

Enhanced Strategic Importance: The acquisition of Syngenta AG raises ChemChina's overall strategic importance to China's agriculture and food industry, as Syngenta AG is the world's third-largest seed company and one of four dominant producers of genetically modified seeds. Enhancing agricultural yields is important for China, as it has more than 20% of the world's population but less than 10% of the planet's arable land. In addition, Chinese agricultural yields are more than 40% lower than those of most Western countries.

Bluestar's parent, ChemChina, announced its intention to buy Swiss seeds and pesticides group, Syngenta AG, for USD43bn on 3 February 2016. The companies announced on 22 August 2016 that they received clearance for the acquisition from the Committee on Foreign Investment in the United States. The transaction, which is likely to be finalised by end-2016, is also subject to anti-trust reviews by regulators from around the world and other customary closing conditions.

Leading Core Business Positions: Bluestar is the market leader in many specialty chemical segments - including organic silicon products, nutritional science and environmental science. These sectors are characterised by significant concentration and high barriers to entry. Bluestar generated 77% of its revenue from its new material and special chemical segment and its nutritional science segment in 2015.

Improved Leverage: We estimate Bluestar's net debt/operating EBITDA in 1H16 at 6x, better than our full-year forecast of 7x. This is due mainly to considerable improvement in the operating EBTIDA margin. Total capex continued to decline, dropping 15% yoy in 1H16 to CNY1.1bn. We expect the company to maintain low capex in the next few years, which will help the company reduce leverage.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

- significant reduction in capex

- no common dividend payout for the next three years

RATING SENSITIVITIES

A revision of Fitch's internal assessment of the creditworthiness of ChemChina would be likely to lead to rating action on Bluestar. Negative action would be likely if Bluestar's legal, operational and strategic linkages with ChemChina weaken.