CFG Investment S.A.C. -- Moody's assigns (P)Ba3 to China Fishery's proposed senior notes

The notes will be unconditionally and irrevocably guaranteed by CFG.

The outlook on the rating is stable.

RATINGS RATIONALE

Majority of the bond proceeds will be used to fund the expansion of CFG's fishing operation in the northern Pacific Ocean, including but not limited to the prepayment of the Fourth Supply Agreement. The remaining proceeds are expected to repay its outstanding debt and to finance the working capital needs.

The provisional status will be removed upon completion of the bond issuance on satisfactory terms and conditions.

"The Ba3 rating reflects CFG's long track record in its core northern Pacific operations, which have been generating stable cash flows" says Alan Gao, a Moody's Vice President and Senior Analyst.

CFG's key strength is its strong position in the supply of Alaska pollock, and its track record of generating stable cash flow and profits from its northern Pacific operations. CFG has enjoyed an EBITDA margin of around 40% and generated EBITDA of around USD150 million in each of the past two years.

"The rating also reflects the improvement in its Peruvian fishmeal production division in FYE 9/2011," adds Gao.

The fishmeal division in Peru accounted for 38% of its total assets as of FYE 9/2011. But its performance in past years was lackluster due to low capacity utilization because of insufficient feedstock. However, we expect the Peruvian division to further improve in FYE9/2012 because of an increased anchovy harvest and strong fishmeal prices.

"Although it will take on additional debt, Moody's expects its Debt/EBITDA in the next 2 years to stay at 3x -- 3.7x, which still positions it in the Ba3 rating level" says Gao.

"Nevertheless, CFG's rating is constrained by its weakened operating cash flow, as a result of a large increase in working capital; increasing pressure on profit margins, due to the rising cost of vessel operations; and geographic concentration" says Gao.

CFG's working capital has been affected by the increase in its receivables and advances to Russian suppliers under the contract vessel operation mode. Those advances and receivables represent working capital CFG provides to suppliers to make the fish purchase, settle custom duties, cover vessel operating cost, and pay profit sharing.

Rising bunker fuel and other vessel operating costs have eroded CFG's profit margins. But, CFG has also implemented cost cuts to improve operating efficiency.

The rating also incorporates risks under CFG's contract vessel operation structure, climate risk, and the financially weak state of its parent company, the Pacific Andes Group.

The stable outlook reflects Moody's expectation that (1) CFG's current management of working capital will not suffer further deterioration, that is, the collection period of its advances to Russian arrangers will not exceed 4 months; (2) CFG will pursue a prudent capital expenditure plan in the next 12-24 months; and (3) CFG will improve its capital structure through new capital raisings, or partially refinancing its USD425 million amortizing syndicated loan.

Moody's sees limited potential for a rating upgrade, given the risk associated with the vessel operating agreements structure, geographic concentration, and the financial weakness of its parent, the Pacific Andes Group.

However, over the long term, there could be upward rating pressure if CFG can (1) further diversify its revenue sources, by expanding its profitable Peruvian and South Pacific operations; (2) demonstrate that it is pursuing a more stable expansion strategy, such that positive free cash flow can be maintained; (3) improve its debt/capital profile to ensure it has sufficient cash to cover short-term debt (CFG currently utilizes short-term bank facilities to fund its high working capital requirements); and (4) improve its credit profile, such that adjusted debt/EBITDA is below 2.0x or 2.5x.

Downgrade rating pressure would arise if CFG's (1) ability to manage working capital deteriorates. In particular, the collection period of its advances to Russian arrangers lengthens beyond 4 -- 5 months; (2) adjusted debt/EBITDA is above 4x, possibly as a result of a deteriorating operating environment, aggressive dividend payouts, or further debt-funded acquisitions or expansion; or (3) capital structure weakens, such that the company relies more heavily on short-term debt financing, leading to an increase in refinancing risk.

Evidence that CFG is providing financial support to other Pacific Andes group companies would also pressure the rating.

The principal methodology used in rating CFG Investment S.A.C was the Global Food - Protein and Agriculture Industry Methodology published in September 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

China Fishery Group Ltd (CFG), listed in Singapore, is engaged mainly in deep sea industrial fishing in Russian and Peruvian waters. Its catches are processed on board and frozen, packed, and delivered to market. It is 36% effectively owned by Pacific Andes International Holdings Ltd (PAI), a Hong Kong-listed integrated fish and seafood product processor.

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Alan Gao Vice President - Senior Analyst Corporate Finance Group Moody'sInvestors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Gary Lau MD - Corporate Finance Corporate Finance Group JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: (852) 3758 -1350 SUBSCRIBERS: (852) 3551-3077 (C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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