Hong Kong, October 28, 2020 -- Moody's Investors Service has assigned a Ba1 rating to the proposed
USD senior unsecured notes to be issued by Yancoal International Resources
Development Co., Limited, and guaranteed by Yanzhou
Coal Mining Company Limited (Yanzhou Coal, Ba1 stable).
The rating outlook is stable.
RATINGS RATIONALE
The Ba1 rating on the proposed notes reflects the irrevocable and unconditional
guarantee from Yanzhou Coal and the fact that the notes will rank pari
passu with Yanzhou Coal's other senior unsecured obligations.
The proposed bond issuance will improve Yanzhou Coal's liquidity
and have limited effect on its credit metrics as the company will primarily
use the proceeds to refinance existing debt.
Yanzhou Coal's Ba1 corporate family rating (CFR) incorporates its standalone
credit profile and a two-notch uplift based on expected support
from its parent Yankuang Group Company Limited (Yankuang, Ba1 stable).
Moody's considers the credit profiles of Yanzhou Coal and Yankuang
as closely linked, given the fact that Yanzhou Coal is Yankuang's
flagship subsidiary, accounting for 66% and 73% of
the parent's total assets and revenue as of the end of June 2020 under
PRC GAAP.
Moody's support assumption also takes into consideration the importance
of Yanzhou Coal's mining assets to Yankuang and ultimately to the Shandong
provincial government, in terms of economic contributions and employment.
Yanzhou Coal's standalone credit profile is supported by (1) its diversified
coal mining assets and related infrastructure; (2) the good quality
of Australian coal under its subsidiary Yancoal Australia, which
has low financial leverage; (3) its low-cost mining operations
in Shandong Province; and (4) its good liquidity.
At the same time, Yanzhou Coal's standalone credit profile is constrained
by (1) the company's moderately high debt leverage relative to its
rated global and regional peers following years of expansion and acquisitions;
(2) carbon transition risk in the long term; and (3) the execution
and financial risks related to its investments in the financial sector.
Yanzhou Coal's leverage for the 12 months to June 2020 -- as
measured by Moody's-adjusted debt/EBITDA -- increased
to 4.7x from 3.6x in 2019 due to the impact of COVID-19
on coal prices. Moody's expects the company's leverage will
improve to around 4.0x through 2020 as China's coal prices
rebound in 2H2020 on the back of a gradual recovery in demand.
Such level of leverage support its standalone credit profile.
Yanzhou Coal's liquidity profile is strong. Its cash on hand and
projected operating cash flow are more than sufficient to cover its planned
capex and upcoming debt maturities over the next 12 months.
Yanzhou Coal's CFR also takes into account the following environmental,
social and governance (ESG) considerations.
Yanzhou Coal faces elevated environmental risks associated with the coal
mining industry, including carbon transition risks as countries
seek to reduce their reliance on coal-fired power. These
risks are partially mitigated by Yanzhou Coal's geographically diversified
customer base across Japan, Korea, China, and Australia.
The company has also made total investments of RMB3.2 billion between
2018 and 2019 in environmental protection, focusing on reducing
air, water and dust pollution.
Yanzhou Coal is also exposed to social risks associated with the coal
mining industry, including health and safety and responsible production.
These risks are somewhat mitigated by the company's "zero mine site accidents"
goal, and by its sponsorship of corporate social responsibility
projects such as poverty alleviation campaigns in Shandong Province.
With respect to governance, Yanzhou Coal's ownership is concentrated
in its parent Yankuang, which directly and indirectly owned 56.01%
of the company as of June 2020. However, this risk is mitigated
by Yanzhou Coal's listing on both the Hong Kong and Shanghai stock exchanges,
and by the Shandong government's close supervision over Yanzhou Coal through
Yankuang.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Yanzhou Coal's stable rating outlook mirrors the stable outlook on Yankuang's
rating, reflecting the close links between the two companies' credit
profiles. This outlook also reflects Moody's expectation
that there will be no material changes in the company's overall business
profile or its strategic importance to Yankuang and ultimately to the
Shandong provincial government over the next one to two years.
Yanzhou Coal's rating would be upgraded if Yankuang's rating is upgraded,
which would reflect Yankuang's ability to strengthen its financial profile
without any adverse changes in Moody's assumption of government
support.
Yanzhou Coal's rating would be downgraded if Yankuang's rating
is downgraded, which would reflect a material deterioration in the
group's financial profile.
Evidence of weakening government support for Yankuang or a significant
increase in its investments in non-coal-related commercial
businesses would also pressure Yanzhou Coal's rating.
The principal methodology used in this rating was Mining published in
September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of this methodology.
Yanzhou Coal Mining Company Limited listed on the Shanghai and Hong Kong
stock exchanges in 1998. As of 30 June 2020, it was 56.01%
owned by Yankuang Group Company Limited, a state-owned enterprise
that is in turn wholly owned by the Shandong Provincial Government.
As of 30 June 2020, Yanzhou Coal owned and operated various coal
mines across China and Australia, including in Shandong and Shaanxi
provinces and the Inner Mongolia Autonomous Region in China, as
well as in the Australian states of Queensland, New South Wales
and Western Australia.
The local market analyst for this rating is Jin Wu, +86 (21)
2057-4021.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
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and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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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.
Gerwin Ho
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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China (Hong Kong S.A.R.)
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Gary Lau
MD - Corporate Finance
Corporate Finance Group
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Client Service: 852 3551 3077
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