Sichuan's mega earthquake could affect Cos' Credit Profile

Standard & Poor's Ratings Services said today that the mega earthquake that hit China's Sichuan province on May 12, 2008, could put to the test companies highly exposed to the area.

"While the full account of casualties and damages inflicted by the 7.9-magnitude earthquake is still unknown, we do not anticipate any significant impact to our ratings on Chinese and Hong Kong companies as none has a substantial asset concentration in the affected areas," said Standard & Poor's credit analyst Ryan Tsang. Towngas China Co. Ltd. (BBB-/Stable/--) operates 14 piped gas projects in Sichuan province, some of which have been affected; however, the financial impact on the company is unlikely to be material and its credit profile is unlikely to be affected. "The exposure of Chinese insurance companies to this event is unlikely to be large because the hardest-hit areas are primarily rural, which tend to have limited insurance coverage, albeit it will take months to have a clear picture of quake-related insurance claims," added Standard & Poor's credit analyst Connie Wong.

We are assessing the potential risks to these companies' operations and businesses, including supply chain issues and customer concentration. "Property developers with a high concentration of planned presale in Chongqing, Chengdu, and other affected areas may face liquidity pressure if their projects have suffered damages or the property market in the affected areas does not recover quickly," noted Mr. Tsang.

Although we believe the damage to the major centers in southwest China, Chongqing and Chengdu, appears to be manageable and is not likely to seriously cripple the regional economy, it could take a year or two for Wenchuan County and other hard-hit areas to fully recover and completely rebuild their infrastructure. Depending on government relief measures and individual insurance coverage, some companies could come under extreme financial pressure if their key operations are disrupted or their assets are badly damaged. 

Sourced From: CRISIL Limited