HONG KONG (Standard&Poor's) June 11, 2014--Standard&Poor's Ratings Services said today that its rating and outlook on China-based textile company Texhong Textile Group Ltd. (BB-/Stable/--; cnBB+/--) are not affected by the company's profit warning. We believe the cost advantages from Texhong's Vietnamese operations and its established market position in the Chinese core-spun yarn market mitigate the risk of deteriorating profitability as yarn prices decline. We have already factored reduced profitability into our base-case forecast for Texhong. The Chinese government may start to provide direct subsidies to farmers rather than set a reserve price to raise cotton stocks. This, in turn, may lower cotton prices. Yarn prices could decline even more severely than cotton prices, compressing profit margins
