Fitch Affirmed Copeinca's Ratings; Outlook Stable

NEW YORK--()--Fitch Ratings has affirmed the ratings for Copeinca ASA (Copeinca) and its wholly-owned subsidiary Corporacion Pesquera Inca SAC (COPEINCA) as follows:

Copeinca

--Foreign Currency Issuer Default Rating (IDR) at 'B+'; Outlook Stable.

COPEINCA

--Foreign Currency IDR at 'B+'; Outlook Stable;

--USD250 million senior unsecured notes at 'B+/RR4'.

The 'B+' rating reflects the strategic importance of Copeinca for China Fishery Group Limited (CFGL, 'BB-'/Outlook Negative), which is in process of refinancing its bridge loan and integrating its Peruvian operations with those of Copeinca.

Importance of China Fishery: The 'B+' rating incorporates the strategic and material importance of Copeinca for CFGL due to its recent acquisition by CFGL. Fitch estimates that CFGL's Peruvian operations (including Copeinca) will represent about half of CFGL's total EBITDA. CFGL's credit profile has weakened following the acquisition of Copeinca ASA for USD778 million in August 2013. CFGL net leverage reached 4.9x at FYE13. Fitch understands that CFLG is working on its refinancing and aims to deleverage.

Refinancing of CFGL: CFGL has proposed the delisting of Copeinca. CFGL is expected to refinance its bridge loan with its core banks with medium-to long-term bank loans. In Copeinca's bond documentation a merger, or Copeinca's providing guarantees, triggers the repayment of its outstanding bonds if bondholders do not provide a waiver. The repayment of these credits is expected to facilitate the integration of the Peruvian operations of both companies.

Industry Risk and Product Concentration: Copeinca's ratings reflect the company's solid market position as the second largest producer in the Peruvian fishmeal industry, with a 10.7% fishing quota in Peru's northern zone. The ratings are constrained by seasonality, industry risks such as price fluctuation on fishmeal and fish oil products, climatic events such as El Nino and La Nina, and unexpected migrations of the anchovy biomass. The company's product and customer diversification are limited. Fishmeal and fish oil represent 100% of the company's sales, and China is the company's main market.

Increased Leverage: Copeinca net leverage increased to 5.9x from 1.8x as a result of the decline of its operating performance in 2013 because of lower beginning inventory of fishmeal and fish oil from the second fishing season of 2012 due to significant reduction in the quota awarded (810,000 Metrics Tons [MT] in 2012 versus 2,500,000 in 2011). The deterioration of Copeinca's net leverage is also the consequence of an increase of its inventories, short-term borrowings and transfer of funds to intermediate holding company. Fitch notes an increase of USD220 million which is reported as an amount due from intermediate holding company in Copeinca's balance sheet as of FYE13 which follows its acquisition from China Fishery. Fitch expects Copeinca's performance to improve in 2014 thanks to an increase of its fishmeal production.

Debt Structure and Short-Term debt: The group's liquidity position is more aggressive given Copeinca's increase of short-term debt and limited cash balance, which was reduced to USD8 million as of FYE13 from USD39 million in FYE12. Copeinca's debt includes USD250 million of unsecured notes due in 2017 and short-term debt, mainly working capital lines and inventory financing (USD130 million in total as of FYE13).

RATING SENSITIVITIES:

Negative Rating Action: Factors that could result in a negative rating action include significant disruptions or failure of the integration of Copeinca's operations within CFGL. A further increase in net leverage of CFGL would also be viewed negatively, as would adverse performance due to climatic conditions, declining fishmeal and fish oil prices and weak liquidity position not supported by bank lines.

Positive Rating Action: Factors that could trigger a positive rating action include a good visibility on the group's future financial and business strategy under the new shareholder structure with a significant reduction in leverage levels on a sustained basis.

Additional information is available at 'www.fitchratings.com'

Applicable Criteria and Related Research:

--'Corporate Rating Methodology' (Aug. 5, 2013);

--'Parent and Subsidiary Rating Linkage' (Aug. 5, 2013).

Applicable Criteria and Related Research:

Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=715139

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=824512

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Contacts

Fitch Ratings
Primary Analyst
Johnny Da Silva, +1-212-908-0367
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Josseline Jenssenn, +51 372 0681
Director
or
Committee Chairperson
Joseph Bormann, +1-312-368-3349
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com

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Contacts

Fitch Ratings
Primary Analyst
Johnny Da Silva, +1-212-908-0367
Director
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
or
Secondary Analyst
Josseline Jenssenn, +51 372 0681
Director
or
Committee Chairperson
Joseph Bormann, +1-312-368-3349
Managing Director
or
Media Relations
Elizabeth Fogerty, +1-212-908-0526 (New York)
elizabeth.fogerty@fitchratings.com