The rating on Chinese aluminum producer China Hongqiao Group Ltd. reflects the company's high concentration risk, its short operating track record, and key-man risk. In addition, Hongqiao faces significant negative free operating cash flow in the next 12 months and industry risks. These weaknesses are partly offset by the company's low cost position, proximity to its customer base, and the good demand prospects for aluminum products in China. Hongqiao's lack of backward integration exposes it to the volatility and cyclicality in China's aluminum industry. Overcapacity and frequently changing and ineffective government polices exacerbate the risk levels and constrain potential for price rises. We view Hongqiao's concentration risk as high because its customer base, product range, supply source, and diversification are
