(The following statement was released by the rating agency)

Fitch Ratings-Hong Kong-January 23:

Fitch Ratings has affirmed Sinochem Hong Kong (Group) Company Limited's (Sinochem HK) Long-Term Issuer Default Rating and senior unsecured rating at 'A'. The Outlook is Stable. A full list of rating actions is at the end of this commentary.

The ratings are derived from Fitch's internal assessment of the creditworthiness of Sinochem HK's parent, Sinochem Corporation (Sinochem Corp), under Fitch's Government-Related Entities Rating Criteria. Based on this criteria, Sinochem Corp, which is indirectly wholly owned by China's State-owned Assets Supervision and Administration Commission of the State Council (Central SASAC), is assessed on a top-down approach from the Chinese sovereign (A+/Stable). Sinochem HK's ratings, in turn, are linked to its parent's creditworthiness under Fitch's Parent and Subsidiary Rating Linkage methodology due to very strong legal, operational and strategic ties between the two entities.

Key Rating Drivers

'Strong' State Control and Support: Fitch assesses Sinochem Corp's status, ownership and control by the Chinese state as 'Strong' due to the company's strategic importance. The company is fully owned by Central SASAC with directors and senior management appointed by the government.

We assess Sinochem Corp's support record and expectation factor as 'Strong'. Sinochem Corp's parent, Sinochem Group, which owns 98% of the company, constantly receives policy and financial support from the government. Fitch expects Sinochem Group to receive ongoing government grants due to its role in stockpiling and managing China's oil-product reserves and trading of other strategic products, such as rubber.

'Strong' Incentive to Support: Fitch assesses the socio-political impact of a Sinochem Corp default on the Chinese government as 'Very Strong'. Sinochem Corp is one of China's four state-owned oil companies and one of the nation's largest petrochemical and logistics services providers and is entrusted to build and operate several strategic national crude oil and oil product reserve bases. It serves the country by stabilising key oil-product prices and ensuring oil and oil product supplies during times of emergency; thus, the company plays an important role in China's energy security.

'Strong' Financial Implications of Default: Fitch assesses the financial implication of a Sinochem Corp default on the government as 'Strong' because it will significantly limit funding for other Chinese SOEs. A financial default would also affect funding for other enterprises owned by the central and provincial governments, especially because Sinochem Corp and Sinochem HK are active domestic and offshore bond issuers.

Parental Linkages Drive Ratings: Sinochem HK's ratings are linked to our credit assessment Sinochem Corp, reflecting the entities' strong ties. Sinochem HK represents its parent's entire property business through its 35.1% ownership of China Jinmao Holdings Group Limited (BBB-/Stable). We estimate that over 85% of Sinochem HK's EBITDA in 2018 and 2019 was derived from Jinmao. Sinochem HK will transfer its entire 52.65% ownership of Sinofert Holdings Limited (A-/Rating Watch Negative) to a wholly owned subsidiary of China National Chemical Corporation Limited (ChemChina, A-/Stable), but Fitch believes Sinochem HK will remain strategically import to Sinochem Corp as the group's main offshore capital-market platform.

We expect the reorganisation of assets between Sinochem HK and ChemChina to continue. We may reassess our rating approach and Sinochem HK's standalone credit profile if Sinochem HK's role as the group's main offshore capital market platform diminishes or if there is a significant change in Sinochem HK's business structure.

Sinochem HK, Jinmao on Deleveraging Trend: Following the strong contracted yoy sales growth of 26% to CNY161 billion in 2019 and 85% to CNY128 billion in 2018, Fitch expects Jinmao to deleverage over the next few years, with net debt/adjusted inventory leverage falling to 42.7% in 2020 and 42.2% in 2021; this should improve Sinochem HK's leverage profile. We forecast Sinochem HK's net debt/EBITDA leverage to normalise to between 3.8x-6.9x and for EBITDA/interest paid coverage to recover to 2.1x-3.6x from 2019 to 2022.

Derivation Summary

Sinochem HK is rated on a top-down basis from its parent, Sinochem Corp, as per Fitch's Parent and Subsidiary Rating Linkage criteria. Fitch's internal assessment of Sinochem Corp's credit profile is based on our Government-Related Entities Rating Criteria. Sinochem Corp is indirectly owned by China's central government and plays a pivotal role in China's supply of chemicals for the agricultural industry. It also bears the responsibility for the research and development of the country's seed, fertiliser and crop-protection sectors.

Sinochem HK's rating is the same as that of COFCO (Hong Kong) Limited (A/Stable), as both companies share the responsibility of enhancing food safety in China. Sinochem HK's rating is one notch higher than that of China National Chemical Corporation Limited (A-/Stable), as the latter does not have an extensive distribution network for seeds and agrochemicals in the country's rural areas. Therefore, the promotion of food safety cannot be conducted without Sinochem HK.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer

- Revenue to increase by 8%-17% a year from 2020 to 2022 (2019 estimate: 8%)

- EBITDA margin to stay above 18% in 2020 to 2022 (2019 estimate: 19%)

- Capex of CNY3.8 billion in 2020, CNY4.8 billion in 2021 and CNY5.5 billion in 2022 (2019 estimate: CNY3.0 billion)

- No mergers or acquisitions or further divesture of its stake in Jinmao

RATING SENSITIVITIES

Developments that May, Individually or Collectively, Lead to Positive Rating Action

- Positive rating action on the Chinese sovereign

- Increased likelihood of state support to Sinochem Corp

Developments that May, Individually or Collectively, Lead to Negative Rating Action

- Negative rating action on the Chinese sovereign

- Decreased likelihood of state support to Sinochem Corp

- Weakening linkages between Sinochem Corp and Sinochem HK

A significant change of Sinochem HK's business structure will lead to a reassessment of our rating approach and its standalone credit profile

For the sovereign rating of China, the following sensitivities were outlined by Fitch in its Rating Action Commentary as of 19 November 2019:

The main factors that could lead to positive action are:

- A material reduction in financial imbalances, for example through a sustained deceleration in credit growth.

- A high degree of confidence that the economy's pervasive contingent liabilities are unlikely to pose a risk to the sovereign balance sheet, for example through tangible evidence that implicit government support for state-linked companies will no longer be forthcoming.

- Widespread adoption of the Chinese yuan as a reserve currency.

The main factors that could lead to negative action are:

- A reversion to credit stimulus policies, leading to a sharp rise in financial vulnerabilities.

- Prolonged large fiscal deficits that lead to a significant rise in public debt ratios.

- Sustained capital outflows sufficient to erode China's external balance sheet strengths.

Liquidity and Debt Structure

Adequate Liquidity: Sinochem HK had over HKD20 billion of readily available cash at end-June 2019, compared with short-term debt of HKD38 billion. According to management, the company also had unused credit facilities in excess of HKD19 billion. Furthermore, Sinochem HK's parent, Sinochem Corp, had unused credit facilities of over CNY400 billion, which Sinochem HK can potentially access through Sinochem Corp's central treasury.

Summary of Financial Adjustments

Perpetual debt securities totaling HKD14.2 billion were reclassified as debt

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of 3 - ESG issues are credit neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity.

For more information on our ESG Relevance Scores, visit www.fitchratings.com/esg

Sinochem Overseas Capital Company Limited

----senior unsecured; Long Term Rating; Affirmed; A

Sinochem Hong Kong (Group) Company Limited; Long Term Issuer Default Rating; Affirmed; A; RO:Sta

----senior unsecured; Long Term Rating; Affirmed; A

Sinochem Offshore Capital Company Limited

----senior unsecured; Long Term Rating; Affirmed; A

Contacts:

Primary Rating Analyst

Andrew Chan,

Director

+852 2263 9559

Fitch (Hong Kong) Limited

19/F Man Yee Building 60-68 Des Voeux Road Central

Hong Kong

Secondary Rating Analyst

Alan Jiang,

Associate Director

+852 2263 9989

Committee Chairperson

Laura Zhai,

Senior Director

+852 2263 9974

Media Relations: Alanis Ko, Hong Kong, Tel: +852 2263 9953, Email: alanis.ko@thefitchgroup.com; Wai Lun Wan, Hong Kong, Tel: +852 2263 9935, Email: wailun.wan@thefitchgroup.com.

Additional information is available on www.fitchratings.com

Applicable Criteria

Corporate Hybrids Treatment and Notching Criteria (pub. 11 Nov 2019)

https://www.fitchratings.com/site/re/10100477

Corporate Rating Criteria (pub. 19 Feb 2019)

https://www.fitchratings.com/site/re/10062582

Government-Related Entities Rating Criteria (pub. 13 Nov 2019)

https://www.fitchratings.com/site/re/10099139

Parent and Subsidiary Rating Linkage (pub. 27 Sep 2019)

https://www.fitchratings.com/site/re/10089196

Sector Navigators (pub. 23 Mar 2018)

https://www.fitchratings.com/site/re/10023790

Additional Disclosures

Dodd-Frank Rating Information Disclosure Form

https://www.fitchratings.com/site/dodd-frank-disclosure/10108372

Solicitation Status

https://www.fitchratings.com/site/pr/10108372#solicitation

Endorsement Policy

https://www.fitchratings.com/regulatory

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