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Rating Action:

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

05 Mar 2020

Hong Kong, March 05, 2020 -- Moody's Investors Service has assigned a Baa2 rating to the proposed subordinated 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 for the rating is stable.

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

RATINGS RATIONALE

The Baa2 rating on the proposed subordinated perpetual securities reflects the guarantee from MCC, as well as the fact that the securities are subordinated to the senior unsecured debt of MCC, but rank above MCC's junior subordinated debt and common stock.

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

Moody's 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 issuer 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 at the end of 2018.

For detailed rating rationales on MCC, please refer to Credit Opinion dated 18 November 2019.

While the coronavirus outbreak is credit negative for the construction sector in China, Moody's expects that the short-term disruption will have no material impact on MCC's fundamental credit profile. Moody's will continue to monitor the development and evaluate the credit impact if the disruption is prolonged.

The stable outlook mirrors the stable outlook for MCC.

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

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

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 Ltd. 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.
© 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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