HONG KONG, Feb. 24 /Xinhua-PRNewswire/ -- Xinhua Far East China Ratings
today upgraded Tsingtao Brewery Co. Ltd ("Tsingtao Brewery" or "the Company";
SH A 600600; HK0168) from BBB- to BBB+ domestic currency issuer credit rating.
Its rating outlook remains stable.
    The upgrade was based on Xinhua Far East's positive view about Tsingtao
Brewery's change in business focus from external acquisition to internal
consolidation, as well as its equity relationship and strategic incorporation
with Anheuser-Busch ("AB"), its improved cash flow and its lower debt burden
since 2002.  On the other hand, Xinhua Far East recognizes that there are
risks of further profitability erosion due to intensified competition as a
result of the ever-increasing beer capacity surplus in China, especially in
lucrative regions, and due to the company's aggressive marketing strategy.
    Tsingtao Brewery's debt repayment ability has significantly improved since
2002.  This, Xinhua Far East believes, has mainly been due to constraints on
capital expenditure and new shares issued to AB.  Its gross debt/ total
capital fell to 18.8% in the third quarter of 2005 from 43.2% in 2001. EBIT
interest coverage increased to 6.4(X) in the first half of 2005 from 1.6(X) in
2001, while net debt/ EBITDA changed to net cash status in 2005 from 2.8 in
2001.
    Xinhua Far East notes that since 2002 Tsingtao Brewery started to slow
down the pace of acquisition and its investment in new capacity as it shifted
its focus from capacity expansion to synergy improvement.  In Xinhua Far
East's view, the Company is unlikely to resume its large-scale capital
expenditure because it has almost finished its nationwide capacity allocation
and secured its position as one of the big two in the domestic beer market.
At the same time, Xinhua Far East expects that the constraints on investment
will continue to benefit its cash position in the coming years.  Its cash flow
from operation (CFO) began to surpass cash outflow from investment (CFI) in
2002.  The surplus between CFO and CFI recorded RMB467 million, RMB604
million, RMB1001 million and RMB1178 million from 2002 to the third quarter of
2005.
    Xinhua Far East also acknowledges the contribution from AB to the
Company's rating profile.  Tsingtao Brewery approved AB to execute conversion
options on accumulatively HKD1.42 billion in convertible bonds in July 2003
and April 2005 successively; this accounted for about 50% gross debt at the
end of 2002.
    On the other hand, Xinhua Far East notes that there are factors that cloud
Tsingtao Brewery's future and prevent it from obtaining a high rating:
    Although Tsingtao Brewery's EBIT margin rose to 7.2% in the third quarter
of 2005 from 4.6% in 2001, its profitability remained weak compared to its
major competitors.  Xinhua Far East attributes its margin improvement to
synergies gained from internal consolidation and the introduction of a higher-
end product mix, but expects these two drivers might not help to the same
degree in the future.
    Firstly, Xinhua Far East believes the low-median-end products will
continue to dominate the Chinese beer market.  The narrow high-end niche,
which comprises less than 10% and is slow-growing, is set to become too
crowded in the near future, with more and more foreign giants entering into
China's market and focusing first on regional and high-end markets.  Secondly,
the geographic diversity of acquired targets, management discrepancies and the
residual stakes held by local governments push further synergy improvements a
longer way into the future than expected.
    As competition heats up nationwide, the Company faces greater pressures in
regions where it used to have dominant power and lucrative profits.  Since the
profit from Guangdong Province contributes considerably to the aggregate
profit of Tsingtao Brewery, Xinhua Far East believes that the Company's profit
margins could deteriorate once a price war is initiated in Guangdong Province
as regional supply is estimated to double the size of demand in 2007.
    Xinhua Far East also believes there are somewhat higher liquidity risks
for Tsingtao Brewery as the short-term borrowing accounted for 87.7% of gross
debt in the third quarter of 2005.
    The rating outlook for Tsingtao Brewery remains stable.

    Tsingtao Brewery is current the largest beermaker in China.  As of year-
end 2004, the Company recorded 37.1 million hls in beer sales and reported
turnover and EBIT of RMB7.7 billion and RMB558 million respectively.  The
Company has the most extensive nationwide capacity allocation among the native
players and enjoys overwhelmingly high market share in the Qingdao region.
Sales in that region and Guangdong Province accounted for 31.5% and 29.5%
total sales respectively in the first half of 2005.  Its brand "Tsingtao" is
among the most widely recognized in China.  Being the second largest
shareholder, Anheuser-Busch Group holds a 27% stake in Tsingtao Brewery and
enjoys 20% voting rights in the Company.
    Tsingdao Beer (SH A 600600) is a constituent of the Xinhua/ FTSE China A50
Indices.  As of market close on February 23, 2006, its total market
capitalization and investible capitalization were RMB 6.27 billion and RMB
1.88 billion respectively.
    For the rating report summary, please visit
http://www.xinhuafinance.com/creditrating .

    Note to Editors:
    About Xinhua FTSE China A50 Index
    The Xinhua FTSE China A50 Index is a real-time tradable index comprising
the largest 50 A Share companies by full market capitalization.  Designed to
meet the needs of QFIIs, it can be used as a basis for both on-exchange and
OTC derivative products, mutual funds and ETFs.  For daily data and further
information, see http://www.xinhuaftse.com .  For daily data and further information,
see http://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 http://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 21 news bureaus and offices in 18
locations across Asia, Australia, North America and Europe.  For more
information, please visit http://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
http://www.fareast-cr.com .

    More Information:

    Hong Kong
     Joy Tsang
     Corporate & Investor Communications Director
     Xinhua Finance
     Tel:   +852-3196-3983 or +86-21-6113-5999
     Fax:   +852-9486-4364
     Email: joy.tsang@xinhuafinance.com

    US
     David Leeney
     Taylor Rafferty (IR/PR Contact in US)
     Tel:   +1-212-889-4350
     Email: david.Leeney@taylor-rafferty.com

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