Shuye Environmental Credit Rating Cut to A as Liquidity and Debt Pressure Mount

A substantial amount of capital has been locked up in Shuye Environmental's fund lending and equity transfer deals. With uncertainty over whether those payments can be recovered, the Guangdong environmental packaging giant now faces considerable liquidity and debt pressure — a severe test.

On May 14, China Chengxin Pengyuan announced that it had downgraded Shuye Environmental Technology Co., Ltd. (Shuye Environmental) to A from AA- on its long-term issuer credit rating, while changing the outlook to negative from stable.

The company's roots trace back to Chenghai Shuye Weaving Factory, where founder Lin Shuguang began with basic woven bags. In 2008, after shareholder approval, the business was renamed Guangdong Shuye Environmental Technology Co., Ltd., marking Lin's move into environmental packaging. Its operations center on films and flexible packaging: the film segment specializes in biaxially oriented polyester film (BOPET), while the packaging segment focuses on eco-friendly shopping bags and courier bags.

Over more than two decades, Shuye Environmental has grown from a small workshop into one of China's leading environmental packaging firms and a supplier to global names such as Walmart and Carrefour. In functional films, it has been particularly active in recent years, holding a sizeable market share in matte film, heat-seal film, laser film, and iron-coating film.

Recent years have brought steady revenue growth and relatively stable profitability. Helped by favorable market conditions and lower raw material prices, the company's overall gross margin edged up. In 2020, Shuye Environmental generated RMB 804 million in revenue, up 8.93% year on year, while net profit attributable to shareholders of the parent company reached RMB 56.2704 million, down 4.05% year on year.

In 2019, Shuye Environmental expanded capacity through self-built investment, finance leases, and outsourcing, adding a 50,000-tonne polymerization unit, PET polyester film production lines, and other equipment. As external financing grew, however, its debt load rose sharply, significantly increasing repayment pressure, with concentrated maturities posing a particular challenge.

At the end of 2020, total assets stood at RMB 2.293 billion, total liabilities at RMB 1.193 billion, and net assets at RMB 1.1 billion, giving a debt-to-asset ratio of 52.01%. It also had RMB 510 million in non-current liabilities, mainly long-term borrowings and bonds payable, with long-term interest-bearing liabilities totaling RMB 334 million. Overall rigid debt was RMB 827 million, mostly short-term interest-bearing liabilities, and the interest-bearing debt ratio was 69%. With interest-bearing liabilities high, financial expenses exceeded RMB 30 million in each of the past two years, taking a significant toll on profits.

At the same time, there is encouraging news for Shuye Environmental. South Korean chemical company SK Chemicals has said it plans to acquire a 10% stake in the company for KRW 23 billion.

—This article is reprinted from China Packaging Network (pack.cn). Original link: http://news.pack.cn/show-377455.html