Hong Kong, December 09, 2021 -- Moody's Investors Service has affirmed China National Chemical Corporation
Limited's (ChemChina) Baa2 issuer rating.
Moody's has also affirmed the following ratings:
(1) The Baa2 backed senior unsecured rating and Baa3 backed subordinated
rating on CNAC (HK) Finbridge Company Limited's debts;
(2) The Baa2 backed senior unsecured rating on CNRC Capitale Limited's
debt;
At the same time, Moody's has withdrawn ChemChina's
ba3 Baseline Credit Assessment (BCA), given that the company is
no longer directly held by the government and is not classified as a Government-Related
Issuer (GRI).
The outlook on all the ratings is stable.
The ratings affirmation reflects Moody's expectation that while
the joint restructuring of ChemChina and Sinochem Group is credit positive
for ChemChina, it will not have any immediate impact on ChemChina's
rating.
Moody's expects that ChemChina, as part of Sinochem Holdings
Corporation Ltd. (Sinochem Holdings), will be able to deleverage
through earnings expansion and debt reduction, with business integration
opportunities and equity proceeds to be raised from its subsidiary's
announced IPO plan. ChemChina will also benefit from coordinated
financial management under Sinochem Holdings. Moody's expectation
of ChemChina's improving credit profile is incorporated in its current
rating.
RATINGS RATIONALE
ChemChina's Baa2 issuer rating incorporates the company's standalone
credit profile and a four-notch uplift based on Moody's assessment
of a likelihood of support from the Government of China (A1 stable) through
the company's ultimate parent, Sinochem Holdings Corporation Ltd.,
when needed.
On 16 September 2021, Sinochem Group and ChemChina completed a share
transfer to Sinochem Holdings, which is fully owned by the State-owned
Assets Supervision and Administration Commission (SASAC) of the State
Council of China. Consequently, ChemChina has become ultimately
100%-owned and managed by Sinochem Holdings.
The four-notch uplift is underpinned by ChemChina's full
ownership by the Sinochem Holdings, the company's significant
role as Sinochem Holdings' core and direct subsidiary to carry out
the group's national mission in agricultural strategies and developing
chemical industry, and ChemChina's material contribution to
its parent in terms of profitability and assets. Based on 2020
results, Moody' estimates that ChemChina accounted for 49%
of Sinochem Holdings' revenue, 55% of EBITDA,
58% of assets and 73% of total debts.
Sinochem Holdings has a strong capacity to provide support, as reflected
by its solid standalone credit profile and Moody's expectation of very
high support from the Chinese government if needed. The company
is one of the largest comprehensive chemical enterprises globally in terms
of revenue and is the only central state-owned enterprise (SOE)
in China's chemical industry, with operations spanning over 150
countries.
ChemChina's standalone credit profile reflects the company's
large business scale and global market position in the chemical and agricultural
industries; the diversification in the company's business portfolio
and end-user industries; and its good access to domestic banks
and capital markets.
At the same time, ChemChina's standalone credit profile is
constrained by the company's high debt leverage; moderate profitability;
and integration challenges with global presence.
Moody's expects ChemChina's leverage will improve to low-11x
by the end of 2022 and decline further to mid-10x by 2023,
from a high 11.0x in the 12 months ended June 2021. The
improvement will be driven mainly by earnings improvement, with
expected business growth from its agrichemical businesses more than offsetting
a softening in chemical pricing and demand.
Such expectation does not consider the impacts of the IPO plan announced
by Syngenta Group, ChemChina's agrochemical subsidiary.
The listing will likely raise around US$10 billion from China's
STAR market on the Shanghai Stock Exchange, with 30% of the
net proceeds to be used for retiring existing debt. ChemChina's
leverage could improve to below 9.0x by 2023 with the successful
execution of the plan, which will support the company's standalone
credit strength.
ChemChina's issuer rating also considers the following environmental,
social and governance (ESG) factors.
ChemChina is exposed to very high environmental and high social risks
associated with its chemical businesses. The company has experienced
challenges in ensuring environmental compliance and safety production
at its large number of domestic subsidiaries. It suffers reputational
damage when any casualty accident happens and is subject to regulatory
measures. Nevertheless, these measures will help ChemChina
improve its track record of managing the environmental and social exposures
at its various subsidiaries.
In terms of governance considerations, Moody's no longer views
ChemChina as a GRI due to its ownership structure change, while
its shareholding is still concentrated in the Chinese government.
The company also has a weak financial profile, as reflected by its
low profitability and high debt leverage. However, the close
supervision by the central SASAC of ChemChina through its parent,
Sinochem Holdings mitigates these risks. In addition, despite
its non-listed entity status, ChemChina has various information
delivery channels through its multiple listed subsidiaries and the bond
market. As a bond issuer, ChemChina publishes its financial
information periodically.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Moody's expectation that the company
will reduce its leverage and that its credit metrics will be consistent
with its rating over the next two years, driven by increasing earnings,
synergies from its restructuring and debt reduction from Syngenta's
IPO plan. The company's asset sales and securitization will likely
help it reduce its leverage, although these remain subject to execution
uncertainties.
The stable outlook also reflects ChemChina's strong funding access,
supported by its status as a core subsidiary of Sinochem Holdings.
Moody's could upgrade ChemChina's ratings if the company's standalone
credit profile strengthens, as demonstrated by improving profitability
and debt leverage such that its adjusted debt/EBITDA stays below 7.5x
on sustained basis, while its strategic importance to Sinochem Holdings
remains unchanged.
Moody's could downgrade ChemChina's rating if the company's
standalone credit profile weakens because of a significant deterioration
in its business or financial profile, such that its adjusted debt/EBITDA
remains above 9x without a likelihood of any significant improvement.
Moody's could also downgrade ChemChina's rating if the company's
importance to Sinochem Holdings or its parent's ability to provide
support weakens.
The principal methodology used in these ratings was Chemical Industry
published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
China National Chemical Corporation Limited, established in 2004,
is one of two core subsidiaries of Sinochem Holdings Corporation Ltd,
the largest chemical company in China. Its business lines include
agrochemicals, rubber products, chemical materials and specialty
chemicals, industrial equipment, as well as petrochemical
processing.
The company reported RMB458.8 billion in revenue in the 12 months
ended June 2021, with total assets of RMB871.2 billion.
It is 100% owned by the Sinochem Holdings, which is fully
and ultimately owned by the State Council of the People's Republic of
China, and supervised by the central government's State-owned
Assets Supervision and Administration Commission.
The local market analyst for these ratings is Jin Wu, +86 (212)
057-4021.
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Gerwin Ho
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Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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