Reuters: Financial Services and Real Estate: TEXT-Fitch cuts GCL-Poly to 'BB+'; drops ratings

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TEXT-Fitch cuts GCL-Poly to 'BB+'; drops ratings May 3rd 2012, 07:53 Thu May 3, 2012 3:53am EDT May 03 - Fitch Ratings has downgraded China-based GCL-Poly Energy Holdings Limited's (GCL-Poly) Long-Term Foreign Currency Issuer Default Rating (IDR) and senior unsecured debt rating to 'BB+' from 'BBB-'. The Outlook is Negative. The ratings have simultaneously been withdrawn. The downgrade reflects deterioration in GCL-Poly's profit margins and an increase in its financial leverage in 2011. The Negative Outlook reflects Fitch's view that this trend of deterioration may persist through 2012, amid an industry supply glut across the polysilicon manufacturing value chain. The company's EBITDAR margin dropped to 35% in 2011 from 40% in 2010, and Fitch forecasts it may further drop below 25% in 2012 under continuous price pressure. The margin pressure, coupled with higher capex due to accelerated capacity expansion, resulted in its leverage - defined as net debt to EBITDAR - jumping to nearly 3.0x at end-2011 from 1.1x a year earlier. Fitch expects leverage to rise further in 2012 as margins drop. The 'BB+' rating reflects GCL-Poly's position as the largest and lowest-cost polysilicon manufacturer in the world. Due to its low costs, the company should be able to turn free cash flow positive, even in the current difficult pricing environment, if it scales back capex which in turn should allow it to deleverage beyond 2012. However, the company's commitment to cutting capex remains unproven, especially when acquisition opportunities at distressed prices arise in a rapidly consolidating industry. This is reflected in the Negative Outlook. The ratings have been withdrawn as they are no longer considered by Fitch to be relevant to its coverage. Fitch will no longer provide ratings or analytical coverage of this issuer.

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