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Texhong Textile needs to improve debt leverage: Moody's
14
Aug '15
Although, Texhong Textile achieved positive results in the first half of 2015, the company needs to sustainably improve its debt leverage, before Moody's Investors Service considers changing the company's negative ratings outlook to stable.

In a statement, Chenyi Lu, Moody's vice president and senior analyst acknowledged that nonetheless, Texhong's lower debt leverage in the first six months of 2015 is credit positive.

Texhong's adjusted debt/EBITDA fell to around 4.0x for the 12 months to June 30, 2015 from 4.7x on December 31, 2014, coming from higher sales volumes for yarns and a better profit margin.

The company achieved a sales volume for yarns of 217,000 tons in the reporting period compared to 183,000 tons in the first half of 2014.

“The result represents an 18.6 per cent growth, and is mainly the result of the commissioning of new capacity in Vietnam in 2H 2014,” Moody's explained.

According to Moody's raw cotton prices have declined, more than the average selling prices for the company's yarn.

As a result, its adjusted EBITDA margin improved to 11.8 per cent in the period under review as against 10.2 per cent in year ended December 31, 2014.

Moody's informed that it will continue to monitor the company's deleveraging efforts, and will focus on Texhong's ability to further improve its EBITDA and manage its debt levels associated with capex.

Texhong has indicated that its capital expenditure in the second half of 2015 and for full 2016 will amount to RMB 670 million and RMB 600 million, respectively.

“The ratings outlook could return to stable if Texhong; maintains its current sales levels; decreases its debt levels and improves its profitability.

Established in 1997 and listed on the Hong Kong Stock Exchange since 2004, Texhong Textile Group Limited specialises in producing core-spun yarn and textile products.

The company currently operates 15 yarn production facilities of which 12 are in the Yangtze River Delta and Shandong Province in China and three in Vietnam. (AR)

Fibre2Fashion News Desk – India

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