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Rating Action:

Moody's assigns Baa1 to senior perpetual securities guaranteed by Metallurgical Corporation of China

12 Apr 2021

Hong Kong, April 12, 2021 -- Moody's Investors Service has assigned a Baa1 senior unsecured rating to the proposed senior perpetual securities to be issued by MCC Holding (Hong Kong) Corporation Limited and guaranteed by Metallurgical Corporation of China Ltd. (MCC, Baa1 stable).

The outlook on the rating is stable.

MCC will use the proceeds to refinance its offshore debt.

RATINGS RATIONALE

"The Baa1 rating reflects the guarantee from MCC and the fact that the perpetual securities will rank pari passu with all other senior unsecured obligations of MCC," says Chenyi Lu, a Moody's Vice President and Senior Credit Officer.

Moody's considers MCC's proposed senior perpetual securities as 100% debt-like despite some hybrid-like features, such as the option of deferred coupons on a cumulative basis and no put options for investors. This is because some of its features, like the high step-up cost of 300 basis points after the first call date and a dividend suspension clause, create a strong incentive for the company to prepay the securities, making it more debt-like.

That said, Moody's could lower the rating on the securities — relative to MCC's issuer rating — if the company raises further debt with deferral features, such that it comes to represent a substantial portion of its capital structure, or if Moody's assesses that the company is likely to defer a large number of coupon payments in advance of a default.

MCC's Baa1 rating incorporates its standalone credit strength and a three-notch uplift to reflect Moody's expectation that the company will receive strong support from its parent, China Metallurgical Group Corporation (CMGC, Baa1 stable), in times of stress.

The credit profiles of MCC and CMGC are closely linked, given that MCC is the key operating subsidiary of the group, accounting for over 98% of both CMGC's assets and revenue as of latest twelve month till June 30, 2020.

MCC's standalone credit strength reflects its (1) long track record and strong market position in the Chinese engineering and construction (E&C) sector; (2) expansion into non-metallurgical construction; and (3) good access to domestic banks and capital market financing.

On the other hand, MCC'S rating is constrained by its exposure to the real estate development and steel industries, as well as the execution and financial risks associated with its large E&C and overseas mining projects.

MCC's leverage, as measured by adjusted debt/EBITDA, was around 3.8x as of year-end 2020. Moody's expects MCC's leverage to remain around 4.0x in the next 12-18 months. Its solid revenue growth will likely be partially offset by lower margins because of increasing market competition and the shifting of its business segment mix.

MCC's issuer rating also takes into account the following environmental, social, and governance (ESG) considerations.

For environmental risks, MCC's resource development segment is exposed to increased environmental risks because of pollution from mining and smelting. However, such risks are mitigated by the limited scale of MCC's mining businesses and its record of environmental protection and complying with regulations.

In terms of governance risks, MCC is monitored and supervised by the central government, as illustrated by the company's ultimate ownership. In addition, the company has adequate information transparency for the public, as required by the relevant codes for companies listed on the Hong Kong and Shanghai stock exchanges.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

The stable outlook mirrors the stable outlook on MCC.

Moody's could upgrade the rating on the senior perpetual securities if Moody's upgrades MCC's issuer rating.

MCC's issuer rating would be upgraded if CMGC's issuer rating is upgraded.

Moody's could upgrade the ratings if CMGC's standalone credit profile improves and its parent, China Minmetals Corporation (China Minmetals, Baa1 Stable), is upgraded.

CMGC's standalone credit profile could improve if it achieves 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.

Likewise, Moody's could downgrade the rating of the senior perpetual securities if Moody's downgrades MCC's issuer rating.

MCC's issuer rating would be downgraded if CMGC's issuer rating is downgraded.

Moody's could downgrade CMGC's rating if the company's standalone credit profile weakens or its parent, China Minmetals, is downgraded.

CMGC's standalone credit profile could weaken because of a material deterioration in its business or financial profile. Credit metrics indicative of a 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.

The principal methodology used in this rating was Construction Industry published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1061454. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Established in December 2008 and with its headquarters in Beijing, Metallurgical Corporation of China Ltd. is one of the largest engineering and construction companies in China. The company is also the market leader in the construction of domestic steel plants.

The company is 49.18% owned by China Metallurgical Group Corporation (CMGC), which is fully owned by China Minmetals Corporation. China Minmetals Corporation is wholly owned by the State Council of China and supervised by the State-owned Assets Supervision and Administration Commission.

Metallurgical Corporation of China Ltd. represents CMGC's core business and accounted for more than 98% of CMGC's total revenue and assets. As of year-end 2020, MCC reported total revenue of RMB400 billion and total assets of RMB506 billion.

The local market analyst for this rating is Jin Wu, +86 (212) 057-4021.

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.

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.

The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

This rating is solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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

No Related Data.
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