Xinhua Far East China Ratings Downgrades the Issuer Rating of BOE Technology Group Co., Ltd. to CC

Xinhua Far East China Ratings Downgrades the Issuer Rating of BOE Technology Group Co., Ltd. to CC

HONG KONG, Oct. 24 /Xinhua-PRNewswire/ -- Xinhua Far East China Ratings (Xinhua Far East) today downgraded the issuer credit rating of BOE Technology Group Co Ltd ("BOE" or "the Company", SZ A 000725, SZ B 200725) to CC from B. Its rating outlook remains negative. The CC rating indicates the Company is very likely to default in the foreseeable future.

As predicted by Xinhua Far East's downgrade in April, BOE's vulnerable credit profile has been further weakened by a harsh operating environment and high capital expenditures. Sharply falling product prices have overwhelmed the competitiveness of the Company's 5th generation TFT-LCD production line and resulted in a negative profit margin with heavy losses reported in the first half of this year. Meanwhile, the Company's tremendous capital expenditure requirements, together with its negative operating cash flow, pushed its debt burden to an extremely high level. Thus, Xinhua Far East considers BOE's credit strength has been severely impaired and has rendered it highly vulnerable to default on its financial commitments.

In the first half of 2006, adverse market conditions for the Company's major products have plummeted BOE's gross margin and EBITDA margin sharply to negative 23.9% and negative 14.9%, respectively. The considerable negative EBITDA means that it could not even meet its variable costs of production. Despite enhanced cost savings by local sourcing and increased sales of its 5th generation TFT-LCD products, improvements in operating efficiency could not offset the impact of diving product prices, particularly in 2nd quarter of this year. As BOE expects to report a net loss in the first three quarters of 2006 and the competition in TFT-LCD sector is very intensive and globalized, Xinhua Far East considers BOE's heavy losses stemming from its core operations can hardly turn around in the foreseeable future.

In addition to the Company's poor operating results, the downgrade action has factored in the highly risky nature of the TFT-LCD sector and BOE's limited resources against operating and financial volatilities. In particular, BOE faces heightened competition from its large international peers which are flooding the market with 6th and 7th generation products, and accordingly are dampening the market demand and product prices of BOE's 5th generation products. As the sector is highly capital intensive and characterized by shortening product life cycles, BOE has very limited flexibility in holding back its capital expenditures. Xinhua Far East anticipates it will be difficult for BOE to sustain its development in the long run given its constraints in capital and technology, operating experience and risk control relative to its international peers.

The downgrade also reflects BOE's extremely weak financial profile and very limited solvency and financial flexibility. Following an aggressive financial policy, the Company relies heavily on bank loans for expansion and capital expenditures, the Company's debt level kept climbing since 2002, and it has reached to such a seriously high level with its gross debt to total capital ratio increasing to 84.5% in mid 2006. On the other hand, BOE continued to generate negative operating cash flow in the first half of 2006. It also exhibited negative EBITDA/interest coverage ratio, far less than adequate liquidity ratio of 0.63 and limited cash reserves in hand, compared with its mounting debt burden of RMB13,409 million as of mid 2006. In addition, the Company's wholly owned subsidiary in Korea, BOE Hydis, has entered into bankruptcy after years of losses, although it is not consolidated in BOE. These all indicate BOE's extremely vulnerable creditworthiness.

Xinhua Far East noted BOE has completed funding of RMB1,860 million in October through a private placement. However, the funds are mainly for producing product components for its 5th generation production line, its direct contribution to BOE's financial flexibility is limited.

Historically, Xinhua Far East has downgraded BOE several times to reflect its worsening credit profile, as a result of its aggressive acquisition for Korea companies and its construction of 5th generation production line. Although BOE has raised four rounds of equity financing since 1997, with total amount of RMB5,117.9 million, adverse operating conditions and huge funding requirements have overwhelmed the growth of its capital base and hindered the Company from materially reducing its financial and liquidity pressure.

BOE is one of the largest display device manufacturers in China. Its main products are TFT-LCD panels used for PC monitors and TV sets. In 2005, BOE's turnover reached RMB13.450 billion.

BOE is a constituent of the Xinhua/ FTSE China 200 and B35 Indices. As of market close on October 23, 2006, its total A-share market capitalization and investable capitalization were RMB3, 078 million and RMB616 million respectively. Its B-share market cap totaled USD186 million, of which all is investable.

For the rating report summary, please visit www.xinhuafinance.com/creditrating .

Note to Editors:
About Xinhua FTSE China 200 and B35 Indices

Xinhua FTSE China 200 Index is the large cap index in the Xinhua FTSE China A Share Index Series and includes the top 200 companies in China by market cap. It is designed as a tradable index and is calculated in real-time every 15 seconds. Xinhua FTSE China B 35 Index is the large cap tradable index in the FTSE Xinhua China B Index Series, covering 'B' shares listed on the Shanghai and Shenzhen stock exchanges. It provides international investors with exposure to the mainland Chinese market. For daily data and further information, see www.xinhuaftse.com .

About Xinhua Far East China Ratings

Xinhua Far East China Ratings (Xinhua Far East) is a pioneering venture in China that aims to rank credit risks among corporations in China. It is a strategic alliance between Xinhua Finance (TSE Mothers: 9399), and Shanghai Far East Credit Rating Co., Ltd. Shanghai Far East became a Xinhua Finance partner company in 2003 and the first China member of The Association of Credit Rating Agencies in Asia in December 2003.

Capitalizing on the synergy between Xinhua Finance and Shanghai Far East, Xinhua Far East's rating methodology and process blend unique local market knowledge with international rating standards. Xinhua Far East is committed to provide investors with independent, objective, timely and forward-looking credit opinions on Chinese companies. It aims to help investors differentiate the credit risks among the corporations in China, thereby, cultivating their awareness and promoting information disclosures and transparency in China market. For more information, see www.xfn.com/creditrating .

About Xinhua Finance Limited

Xinhua Finance Limited is China's unchallenged leader in financial information and media, and is listed on the Mothers board of the Tokyo Stock Exchange (symbol: 9399) (OTC ADRs: XHFNY). Bridging China's financial markets and the world, Xinhua Finance serves financial institutions, corporations and re-distributors through four focused and complementary service lines: Indices, Ratings, Financial News and Investor Relations. Founded in November 1999, the Company is headquartered in Shanghai with 20 news bureaus and offices in 19 locations across Asia, Australia, North America and Europe. For more information, please visit www.xinhuafinance.com .

About Shanghai Far East Credit Rating Co., Ltd

Shanghai Far East Credit Rating Co., Ltd. is the first and leading professional credit rating company with comprehensive business coverage in China. It is an independent agency established by the Shanghai Academy of Social Sciences with the mission to develop internationally accepted standards for capital market in China. The company is a pioneer in conducting bond- rating business in China. For years, it has been authorized by the Shanghai branch of the PBOC to undertake loan certificate credit rating.

Since establishment, it has rated over 1,000 corporate long-term bonds and commercial papers, based on the principles of objectivity, fairness and independence. The company has also maintained over 50% market share in the loan certificate-rating sector in Shanghai for three consecutive years. With its strong local presence and knowledge, it provides investors with unique and the most insightful credit opinion. For more information, see www.fareast- cr.com .

More Information:

Hong Kong
Joy Tsang
Corporate & Investor Communications Director, Xinhua Finance
Tel: +852-3196-3983, +8621-6113-5999, +852-9486-4364
Email: joy.tsang@xinhuafinance.com

US
Taylor Rafferty (IR/PR Contact in US)
Ms. Ishviene Arora
Tel: +1-212-889-4350
Email: ishviene.arora@taylor-rafferty.com

+8621-6113-5999, or joy.tsang@xinhuafinance.com , or Ms. Ishviene Arora of
Taylor Rafferty, +1-212-889-4350, or ishviene.arora@taylor-rafferty.com

Source: Xinhua Far East China Ratings

CONTACT: Joy Tsang of XFN, +852-3196-3983/ +852-9486-4364

Web site: http://www.xinhuafinance.com/
http://www.xinhuaftse.com/
http://www.xinhuafinance.com/creditrating
http://www.xfn.com/creditrating
http://www.fareast-cr.com/

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