OREANDA-NEWS. Fitch Ratings says that China Fishery Group Limited's (China Fishery; BB-/Negative) rights issue to raise up to USD215m will immediately strengthen its liquidity position, if the deal goes through. Fitch may revise the Outlook to Stable if the refinancing needs are addressed adequately and net leverage as measured by adjusted net debt/EBITDAR goes down below 3x sustainably.

The net proceeds of the rights issue together with the other group resources will fund the redemption of the USD250m 9.0% notes due 2017 issued by the subsidiary Copeinca Group, which was acquired by China Fishery in 2013. At 28 Dec 2014, China Fishery had USD171m cash on hand and roughly USD30m of unused banking facility. If the rights issue is completed, the proceeds plus the cash on hand would be sufficient to refinance the bond.

Furthermore, China Fishery's rights issue came right after its parent, Pacific Andes Resources Development Limited, completed the rights issue of approximately USD150m at end-January. This shows the company's commitment and shareholders' continuous support to redeem the Copeinca bond.

China Fishery's fundamentals still support the rating, despite the closing of the second fishing season of Peruvian anchovy from November 2014 to January 2015. Its second quarter results will be most affected but an acoustic study showed that the total allowable catch in the coming fishing season from April to September will go back to normal compared with a zero catch in the previous season.

In addition, international fishing authorities have suspended the operations of Damanzaihao, a supporting vessel in its South Pacific Ocean fleet operation segment. However, the impact on the company's 2015 results will likely be minimal as the fleet operation segment contributed only 2% to its FY2014 EBITDA.

The company's leverage, as measured by adjusted net debt to operating EBITDAR, decreased to 4.4x in FY14 from 5.0x a year ago, driven in part by the partial refund of USD112m from its long-term supply agreement (LSA) with Russian suppliers. The remaining USD111m from the LSA is to be fully paid by March 2016. After factoring in the LSA refund, rights issue, and the positive free cash flow of about USD100m to be generated in FY15, Fitch expects CFG's debt to fall by USD330m and the net leverage to drop below 3.5x by the end of 2015 if management does not increase capex and/or dividends.