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Rating Action:

Moody's assigns first-time Baa3 issuer rating to Tianqi Lithium Corporation; outlook stable

 The document has been translated in other languages

14 Nov 2017

Hong Kong, November 14, 2017 -- Moody's Investors Service has assigned a first-time Baa3 issuer rating to Tianqi Lithium Corporation.

At the same time, Moody's has assigned a Baa3 senior unsecured rating to the proposed bonds to be issued by Tianqi Finco Co., Ltd -- an indirectly wholly owned subsidiary of Tianqi Lithium -- based on the unconditional and irrevocable guarantee provided by Tianqi Lithium.

The ratings outlook is stable.

The bond rating reflects Moody's expectation that Tianqi Lithium will complete the bond issuance upon satisfactory terms and conditions, including proper registrations with the National Development and Reform Commission and the State Administration of Foreign Exchange in China (A1 stable).

The proceeds from the proposed issuance will be used for Tianqi Lithium's general corporate purposes.

RATINGS RATIONALE

"Tianqi Lithium's Baa3 issuer rating reflects the positive demand outlook for lithium chemicals products, the company's strong position in the lithium chemicals industry, and its robust profitability and low leverage that reflects in turn its prudent financial management," says Gerwin Ho, a Moody's Vice President and Senior Analyst.

Counterbalancing these strengths, Tianqi Lithium's Baa3 rating considers its product concentration in lithium minerals and lithium chemicals with limited revenue scale and its exposure to regulatory risks.

Tianqi Lithium benefits from its leading positions in the lithium minerals and lithium chemicals markets. With its predecessor established in 1995, the company has extensive experience and a long track record in the lithium chemicals industry.

It also owns and has access to high quality lithium minerals, a characteristic which benefits its lithium chemicals business by providing upstream vertical integration. Tianqi Lithium owns 51% of a lithium mine in Greenbushes in Australia. It is one of largest spodumene -- a type of solid lithium mineral -- mines in the world, with high quality lithium deposits and is the company's core source of lithium minerals supply. The US specialty chemicals company, Albemarle Corporation (Baa2 stable), holds the remaining 49% stake in the mine.

At the same time, continued growth in demand for rechargeable batteries used in electric vehicles, computers, communications equipment and consumer electronics and energy storage will likely support sustained growth in lithium chemicals over the next 3-5 years.

Based on the positive demand outlook and Tianqi Lithium's leading market positions, Moody's expects that the company's revenue will grow about 10% to 12% year-on-year in 2018 and 2019, driven by a rise in sales volumes and supported by capacity expansion.

Tianqi Lithium's profitability is robust. The company's adjusted EBITDA margin improved to 70% in 2016 from 33% in 2014, driven by strong demand for its lithium chemicals products, its integrated business model, and its large production scale.

Moody's expects that Tianqi Lithium's adjusted EBITDA margin will improve to about 80% over the next 12-18 months, driven by continued strong demand for its lithium chemicals products. This level of profitability is strong for its Baa3 rating.

Tianqi Lithium's robust profitability and prudent financial policies have resulted in low financial leverage and positive free cash flow generation. While Moody's expects debt leverage — as measured by debt/EBITDA — to rise to about 2.0x in 2017 from 1.6x in 2016, as the company prefunds its capacity expansion during 2017-2019, leverage will likely improve to below 2.0x in 2018 as EBITDA rises. Such a leverage level is strong for its Baa3 rating.

On the other hand, the company's product concentration in lithium minerals and chemicals exposes it to volatility in product prices and demand levels — driven by changes in the supply and demand balance — and constrains its revenue scale. Its product concentration risk, however, is mitigated by the diverse range of end-markets for its offerings, which span the consumer and capital goods markets.

Tianqi Lithium is also exposed to regulatory risks relating to: (1) mining and chemicals production safety that could affect its production and costs; (2) international trade and taxation; and (3) the promotion of new energy vehicles (NEV), and potential changes in government subsidies that could affect NEV demand and sales levels.

In Tianqi Lithium's rating, Moody's also considers proceedings relating to Tianqi Lithium's subsidiary Talison Lithium Pty Ltd, which owns and operates Tianqi Lithium's Greenbushes lithium mine in Australia. In July 2017, Global Advanced Metals Pty Ltd (GAM) commenced proceedings against Talison Lithium for failing to obtain prior written consent from GAM for Talison Lithium's expansion plans.

According to disclosure from Tianqi Lithium's 1H 2017 interim report, GAM's proceedings do not affect Tianqi Lithium's existing lithium minerals operations in Greenbushes.

Moody's also notes that the lithium minerals and lithium chemicals industries are evolving rapidly in response to growing demand. As a result, companies in these industries, including Tianqi Lithium, are exposed to event risks relating to investments, acquisitions and technological advances.

Moody's expects Tianqi Lithium will demonstrate its extensive experience in the lithium chemicals industry and prudent financial management when facing such event risks. Deviations from our expectation will pressure Tianqi Lithium's ratings.

Tianqi Lithium's liquidity position is adequate. Its cash of RMB2.3 billion at end-June 2017, short-term principal protected investments of RMB100 million and expected operating cash flow over the next 12 months will be sufficient to cover its short-term debt of RMB2.2 billion, dividend payments and capital expenditure over the same period.

Tianqi Lithium's issuer rating is not affected by subordination to claims at the operating company level, because the latter are not seen as material, especially as we expect the majority of claims will remain at the holding company.

The stable rating outlook reflects Moody's expectation that Tianqi Lithium will: (1) maintain its leading position in the lithium chemicals industry; (2) continue to grow its revenue scale and show strong profitability; and (3) demonstrate prudent financial management, as characterized by low leverage, good liquidity, and disciplined capital expenditure and acquisitions.

Upward rating pressure could arise, if Tianqi Lithium: (1) expands its revenue scale and maintains or improves its market position; (2) diversifies its product and customer exposures; and (3) improves its cash flow and maintains prudent financial management, with debt/EBITDA below 1.5x on a sustained basis.

On the other hand, downward rating pressure could emerge, if the company shows that: (1) it cannot expand its revenue scale; (2) its profitability weakens meaningfully; and (3) its liquidity or credit profile deteriorates, such that its adjusted debt/EBITDA exceeds 2.5-2.75x on a sustained basis.

The principal methodology used in these ratings was Global Chemical Industry Rating Methodology published in December 2013. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Headquartered in Chengdu, Sichuan Province, Tianqi Lithium Corporation is a leading lithium chemicals producer that mines, makes and sells lithium minerals and lithium chemicals. The company owns a 51% stake in a lithium mine in Greenbushes in Australia.

Tianqi Lithium's revenue reached RMB3.9 billion in 2016.

Tianqi Lithium was listed on the Shenzhen Stock Exchange in 2010, and was 35.8% owned by Chengdu Tianqi Industry Group Co., Ltd. at end-June 2017.

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 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.

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.

Gerwin Ho
Vice President - Senior Analyst
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

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