In mid January Standard & Poor’s Ratings Services lowered its long-term corporate credit rating on Chaoda Modern Agriculture to ‘CCC’ from ‘B-’. At the same time, the agency lowered the Greater China credit scale rating on Chaoda to ‘cnCCC’ from ‘cnB’. It kept the ratings on CreditWatch with negative implications, where they were originally placed on October 4, 2011. “We lowered the rating on Chaoda by two notches to reflect our view that the payment acceleration of a convertible bond is imminent. The rating remains on CreditWatch to reflect our uncertainty over the strength of Chaoda’s liquidity and its ability to repay the convertible bond in a timely manner. In particular, a long delay in its annual results announcement has increased information risk.” said S&P. “In our opinion, investors in Chaoda’s US$200 million convertible bond due 2015 have a strong incentive to accelerate bond payment, and our rating assumption is that Chaoda will fully redeem the convertible bond.” it added. “However, we are unsure about the company’s ability to redeem the bond, given Chaoda still has not announced its annual results for the year ended June 30, 2011,” said S&P’s credit analyst Joe Poon. “Without the annual results, Standard & Poor’s has insufficient information over Chaoda’s current offshore cash balance and other potential sources of liquidity. We also believe Chaoda’s financial flexibility has declined significantly due to its share suspension and its current condition.” he added. The agency aims to review the CreditWatch status within a month, when it expects to receive more clarity about the convertible bond arrangements, the company’s liquidity situation, and the annual results. Without that information, S&P may lower the rating to ‘CC’ before March if it believes Chaoda is highly vulnerable to nonpayment of its debt obligations.

Trading of Chaoda Modern Agriculture has been suspended since September 27 last year.