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I AGREE
14 May 2014
Hong Kong, May 14, 2014 -- Moody's Investors Service has assigned a provisional (P)Ba1 rating to
the senior unsecured perpetual bond to be issued by Yancoal International
Trading Co., Ltd. and guaranteed by Yanzhou Coal Mining
Co., Ltd.
The rating is also on review for downgrade, reflecting the review
for downgrade of Yanzhou Coal's Ba1 corporate family rating and
senior unsecured debt rating of Yancoal International Resources Development
Co Ltd.
The proceeds from the bond will be used for repayment of indebtedness,
capital expenditure, working capital as well as for general corporate
purposes.
The provisional status of the rating for the perpetual bond will be removed
upon completion of the issuance and after all satisfactory terms and conditions
have been met.
RATINGS RATIONALE
"The perpetual bond issuance will provide additional funding for Yanzhou
Coal to manage its business in an industry down-cycle," says
Simon Wong, a Moody's Vice President and Senior Credit Officer/Manager.
The (P)Ba1 rating assigned to the proposed perpetual bond reflects the
Ba1 rating of Yanzhou Coal as well as the senior unsecured nature of this
obligation.
Moody's observes the securities being offered have specific hybrid-like
features, including cumulatively deferred interest and dividend
stoppers.
However, such features do not alter our view of the rating for this
perpetual bond, which is ranked pari passu to Yanzhou Coal's
all other senior unsecured obligations.
Moody's assesses the likelihood of the issuer deferring the coupon
over the next 12 months as low.
However, the perpetual bond rating could be lowered --
relative to the company's senior unsecured ratings --
if debt with deferral features becomes a substantial portion of the capital
structure, or if we come to believe that the company would likely
defer many payments in advance of default.
"The perpetual bond will raise debt leverage -- as measured
by debt/EBITDA -- as the bond will be given 100%
debt treatment in Moody's calculations," says Wong.
Moody's notes that Yanzhou Coal's 1Q 2014 performance was
affected by: (1) the continued deterioration in thermal and coking
coal prices; and (2) the impact of adverse seasonal factors on coal
production and sales.
Yanzhou Coal's credit profile has weakened materially due to its
higher-than-expected debt level at end-2013,
and which was the result of a significantly higher level of total capex,
as well as the ongoing difficult operating environment for the coal sector.
These factors combined are pressuring its ratings and triggered the review
for downgrade.
Moody's review will focus on Yanzhou Coal's: (1) business strategy
and financial policy in managing its growth plans, against the backdrop
of a difficult operating environment; (2) flexibility in relation
to its 2014 capex budget of RMB9.4 billion; (3) recent acquisitions
as well as ongoing greenfield investments; (4) plans to seek bank
waivers in respect of certain financial covenants breach by its Australian
operations, and (5) plans to reduce its subsidiary debt to total
assets ratio.
Moody's review will also reassess the company's relationship
with and potential degree of support from the Shandong government and
from its parent, Yankuang Group (unrated).
Moody's also notes that Yanzhou Coal's subsidiary debt to total assets
ratio exceeded 15% in 2012 and 2013, therefore increasing
the risk of structural subordination.
Moody's could downgrade its bond ratings if the company is unable
to lower this ratio below 15% within the next 6-12 months.
The principal methodology used in this rating was the Global Mining Industry
published in May 2009. Please see the Credit Policy page on www.moodys.com
for a copy of this methodology.
Yanzhou Coal Mining Co., Ltd was listed in Shanghai,
Hong Kong and New York in 1998. It is 56.5% directly
and indirectly-owned by the Yankuang Group, a state-owned
enterprise that is wholly owned by the Shandong Provincial State-Owned
Assets Supervision and Administration Commission.
Yanzhou Coal is one of the top coal mining groups in China. It
has 12 operating mines in Shandong Province, Shaanxi Province and
Inner Mongolia. It also has 14 mines in Australia; nine in
production and five in the exploration stage.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 rating action on the support provider and in relation to each particular
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
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have affected the rating. For further information please see the
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For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this 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.
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.
Simon Wong
VP - Sr Credit Officer/Manager
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
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's assigns (P)Ba1 to Yanzhou Coal's perpetual bond; rating on review for downgrade
No Related Data.
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