The rating on Texhong Textile Group Ltd. reflects the China-based textile company's debt-funded expansion, narrow product range, and lower profitability than that of peers in the 'BB' rating category. The company's good niche market position in core-spun yarns, stable cash flows, and record of prudent financial management temper these weaknesses. Texhong's steady growth profile, driven by its expansion in Vietnam and above-average operating efficiency, is an additional supporting factor. We view Texhong's business risk profile as fair. The company is likely to incur substantial capital expenditure over the next three to five years. Its debt-funded expansion plan in Vietnam is fairly aggressive even though it has delayed the development of a new production base there. We believe Texhong's record of
