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China's airlines potential winners of yuan revaluation - Fitch

22-Jul-2005

BEIJING (XFNews) - Chinese airlines will be potential winners of the revaluation of the yuan, while insurance and chemical companies will be the likely losers, Fitch Ratings said.

"The highly leveraged industries, ie airline sector, will substantially benefit from the Chinese currency's appreciation, because the foreign currency denominated liabilities make up roughly two-thirds of total borrowings in major Chinese airlines including Air China and China Southern," Fitch Ratings associate director Shang Ma said.

Ma said the revaluation will have a negative impact on upstream oil companies such as CNOOC Ltd and upstream oil service companies such as China Oilfield Services because their earnings are linked to international prices, which are in US dollars, while the majority of their costs are yuan denominated.

However, integrated oil companies such as PetroChina and Sinopec will be able to offset any negative impact with their downstream operations.

The impact on petrochemical companies will depend on their sales performances following the revaluation, Ma said.

Commodity producers such as coal miners, non-ferrous metal producers and steel mills will see a negative impact from an appreciation in the yuan as they source a large portion of their costs in China, while their product prices are subject to international markets.

Furthermore, China's export industries such as textile, electronics and other consumer products will be "widely" affected, Ma said.


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