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Rating Action:

Moody's assigns Baa2 to Metallurgical Corporation of China's USD subordinated perpetual securities

 The document has been translated in other languages

13 Jan 2020

Hong Kong, January 13, 2020 -- Moody's Investors Service has assigned a Baa2 rating to the subordinated perpetual securities issued by MCC Holding (Hong Kong) Corporation Limited and guaranteed by Metallurgical Corporation of China Ltd. (MCC, Baa1 stable).

The proceeds of the issuance will be used by MCC to refinance existing debt and for the company's general corporate purposes.

The outlook for the rating is stable.

RATINGS RATIONALE

The Baa2 rating reflects the guarantee from MCC, as well as the fact that the securities will rank subordinated to the senior unsecured obligations of MCC.

The bond issuance will not materially increase MCC's debt leverage, because the company will primarily use the proceeds to refinance existing debt.

Moody's considers MCC's perpetual securities as 100% debt-like, due to the high step-up cost of 300 basis points after the first call date, with the cost creating a strong incentive for the company to prepay the securities.

The Baa2 rating of the perpetual securities is one notch lower than MCC's senior unsecured rating to reflect the subordinated status of the notes.

Moody's also estimates a low likelihood of MCC deferring the coupon, given the dividend suspension clause and the company's strong access to funding.

However, Moody's could lower the rating on the subordinated perpetual securities if Moody's assesses that the company is likely to defer a large number of coupon payments in advance of 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.

MCC's standalone credit strength reflects its (1) long track record of more than 60 years in China's construction industry, strong market position and large scale, with a dominant position in the construction of steel plants in China; (2) business diversification and strong order backlog, counterbalanced by the weak metallurgical construction sector; and (3) good access to domestic banks and capital market financing.

The rating is constrained by (1) MCC's exposure to the real estate development and steel industries, which entails business risks; and (2) the execution and financial risks associated with MCC's large engineering and construction and overseas mining projects.

We consider the credit profiles of MCC and CMGC as closely linked given MCC is the key operating subsidiary of the group, accounting for over 98% of both CMGC's assets and revenue at the end of 2018.

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

MCC'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 MCC's mining businesses and its track record of environmental protection and compliance with relevant regulations.

In terms of governance considerations, MCC has a good level of information transparency given (1) the company's listing on the Shanghai and Hong Kong stock exchanges; (2) its parent, CMGC's 100% indirect ownership by the State-owned Assets Supervision and Administration Commission under the State Council of China, which subjects CMGC's operations to the monitoring and supervision by the central government.

MCC has also maintained prudent financial policies, as demonstrated by its limited investments in build-operate-transfer/public-private partnership projects and ongoing deleveraging in recent years.

The stable outlook on MCC's rating reflects Moody's expectation that, over the next 12-18 months, (1) MCC's credit metrics will be sustained at levels that are appropriate for its standalone credit quality; and (2) the company's importance to its parent will remain intact.

Moody's could upgrade MCC's issuer rating if Moody's upgrades CMGC's issuer rating, given the two companies' closely linked business and financial profiles.

Moody's could downgrade MCC's issuer rating if (1) Moody's downgrades CMGC's issuer rating, or (2) there is a decline in MCC's importance to its parent.

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.

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 56.18% owned by China Metallurgical Group Corporation (CMGC), which is fully owned by China Minmetals Corporation (Baa1 stable). 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 represents CMGC's core business and accounted for more than 98% of CMGC's total revenue and assets in 2018.

The local market analyst for this rating is Jin Wu, +86 (21) 2057-4021.

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.

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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

No Related Data.
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