Hong Kong, November 13, 2019 -- Moody's Investors Service has affirmed the Baa1 issuer rating of China
Metallurgical Group Corporation (CMGC). The outlook on the rating
remains stable.
At the same time, Moody's has withdrawn CMGC's ba1 Baseline
Credit Assessment, because it is no longer classified as a government-related
issuer. The group is now analyzed under the Construction Industry
methodology published in March 2017 on a standalone basis and as a subsidiary
of China Minmetals Corporation (Baa1 stable), which is a government-related
issuer 100% owned by the State-owned Assets Supervision
and Administration Commission under the State Council of China.
RATINGS RATIONALE
The affirmation of CMGC's Baa1 issuer rating reflects CMGC's
standalone credit profile and a three-notch uplift based on Moody's
expectation that CMGC will continue to receive extraordinary support from
the Government of China (A1 stable) through the company's parent,
China Minmetals, if needed.
Moody's support assessment reflects (1) CMGC's status as a
core subsidiary of China Minmetals, accounting for 54.5%,
49.7% and 42% of total assets, revenue and
adjusted EBITDA, respectively, of the consolidated China Minmetals
in 2018, (2) CMGC's strategic importance to the renovation
and upgrade of the domestic steel industry and to the overall construction
industry in China, and (3) the government's ongoing financial
support for CMGC since its consolidation under China Minmetals.
CMGC's standalone credit profile reflects the company's (1) long track
record, strong market position and large operating scale in the
Chinese engineering and construction (E&C) sector, particularly
in the construction of steel plants; (2) expansion into non-metallurgical
construction which helps reduce the impact of the mature metallurgical
construction sector; and (3) good access to domestic banks and capital
market financing.
However, CMGC's standalone credit profile is constrained by (1)
its exposure to the real estate development and steel industries,
which entails business risks; and (2) the execution and financial
risks associated with its large E&C and overseas mining projects.
Moody's expects that CMGC will continue to generate solid performance
in next 12-18 months, supporting its ratings.
The company increased its order backlog in 2019, with the value
of newly signed contracts from January to July 2019 increasing by 18.9%
from the same period in 2018 to around RMB442.89 billion.
Moody's expects CMGC's adjusted debt/EBITDA will improve to 5.0x-5.5x
by 2020, after improving to 5.7x in 2018 from 6.2x
in 2017, driven by its increasing earnings and stable debt due to
expanding backlogs and constrained investments for its PPP and real estate
projects. The company's improving financial profile is in
line with Moody's expectation and is factored into the current Baa1
rating.
CMGC's issuer rating also takes into account the following environmental,
social and governance (ESG) considerations.
CMGC's resource development segment has elevated environmental and social
risks, in the form of pollution from mining and smelting,
its management of soil, water and waste, and natural and man-made
disasters such as tailings dams and pit wall collapses.
These risks are mitigated by the small scale of CMGC's mining businesses
and by its track record of environmental protection and compliance with
relevant regulations.
In terms of governance risks, Moody's has also considered
the company's 100% indirect ownership by the State-owned
Assets Supervision and Administration Commission under the State Council
of China, which subjects its operations to the monitoring and supervision
by the central government. CMGC has also maintained a prudent financial
policy, as demonstrated by its limited investments in BOT/PPP projects
and ongoing deleveraging in recent years.
The stable outlook on CMGC's issuer rating reflects Moody's
expectation that (1) CMGC's credit metrics will be maintained at levels
that are appropriate for its rating; and (2) the company's important
role in China's metallurgical and construction sectors, and
the Chinese government's ability to support the company through
its parent, will remain intact.
Moody's could upgrade the rating if CMGC's standalone credit
profile improves and its parent, China Minmetals, is upgraded.
CMGC's standalone credit profile could improve, underpinned
by steady revenue growth, stable profitability and debt reductions,
such that the company's adjusted debt/EBITDA falls below 4.5-5.0x
on a sustained basis.
CMGC's rating will be downgraded if the company's standalone credit
profile weakens.
CMGC's standalone credit profile could weaken because of a material
deterioration in its business or financial profile. Credit metrics
indicative of weakening standalone profile include a fall in its order
backlog, lower profitability or an increase in debt, such
that the company's adjusted debt/EBITDA stays above 6.0x-6.5x
on sustained basis.
A downgrade of CMGC's rating could also be triggered by a weakening of
Moody's support assessment due to its weakening strategic importance to
the Chinese government and its parent, or a downgrade of its parent's
rating.
The principal methodology used in this rating was Construction Industry
published in March 2017. Please see the Rating Methodologies page
on www.moodys.com for a copy of this methodology.
China Metallurgical Group Corporation (CMGC) is engaged in the business
of engineering and construction, equipment manufacturing,
property development, and resources development.
Headquartered in Beijing, CMGC is 100% owned by China Minmetals
Corporation (Baa1 stable), which is in turn fully owned by the State-owned
Assets Supervision and Administration Commission under the State Council
of China. In 2018, CMGC reported total revenue of RMB289
billion and total assets of RMB446 billion.
The local market analyst for these ratings is Jin Wu, +86 (212)
057-4021.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
ratings in accordance with Moody's rating practices. For ratings
issued on a support provider, this announcement provides certain
regulatory disclosures in relation to the credit rating action on the
support provider and in relation to each particular credit rating action
for securities that derive their credit ratings from the support provider's
credit rating. For provisional ratings, this announcement
provides certain regulatory disclosures in relation to the provisional
rating assigned, and in relation to a definitive rating that may
be assigned subsequent to the final issuance of the debt, in each
case where the transaction structure and terms have not changed prior
to the assignment of the definitive rating in a manner that would have
affected the rating. For further information please see the ratings
tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entity is participating and the rated entity or its agent(s)
generally provides Moody's with information for the purposes of
its ratings process. Please refer to www.moodys.com
for the Regulatory Disclosures for each credit rating action under the
ratings tab on the issuer/entity page and for details of Moody's
Policy for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Chenyi Lu
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
