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Rating Action:

Moody's changes CITIC Resources' Ba3 rating outlook to negative

 The document has been translated in other languages

21 Dec 2015

Hong Kong, December 21, 2015 -- Moody's Investors Service has changed to negative from stable the outlook for CITIC Resources Holdings Limited's Ba3 corporate family rating.

At the same time, Moody's has affirmed the Ba3 corporate family rating.

RATINGS RATIONALE

"The change in the rating outlook to negative reflects the weakening performance of the company's exploration & production (E&P) businesses and its deteriorating credit metrics in view of the persistency of the low oil price environment," says Joe Morrison, a Moody's Vice President and Senior Credit Officer, and also the International Lead Analyst for CITIC Resources.

Moody's has concerns that CITIC Resources' credit metrics will likely deteriorate further in 2016.

Accordingly, adjusted debt/EBITDA will increase to a high level of around 20x and adjusted EBITDA/interest will fall to 1.0x from 15x and 1.5x in 2015 on the expectation of continued low oil prices and the absence of any recovery in its commodity export business in the next 12-18 months.

Such a high level of debt leverage will pressure its ratings.

"We also expect CITIC Resources will continue to be supported by its parent, CITIC Group Corporation (A3 stable)," says Pingping Xing, a Moody's Assistant Vice President and Local Market Analyst.

CITIC Resources' Ba3 corporate family rating combines the company's standalone credit strength and a three-notch uplift, reflecting our assessment that it is likely to receive strong support from its ultimate parent, in times of financial difficulty.

The three-notch uplift considers the company's importance as CITIC Group's overseas platform for resources development and the high reputational risk for the group should CITIC Resources default on its debt.

Therefore, Moody's believes that the company is capable of refinancing its short-term debt due to its association with CITIC Group. For example, the company was able to secure a syndicated term loan of $490 million in 1H2015.

CITIC Resources' standalone credit strength reflects: (1) the small scale of its E&P operations; (2) the cyclical nature of its coal and metal businesses; (3) its acquisitive appetite; and (4) the uncertainties surrounding the successful ramp-up of production at the Hainan-Yuedong project.

CITIC Resources' diversified business portfolio partially mitigates the volatility in its earnings, while its association with CITIC Group helps it maintain good access to bank funding.

Upward ratings pressure is limited, given the negative ratings outlook.

Nevertheless, the rating outlook could return to stable if CITIC Group provides strong support to improve both the company's financial profile -- through enhanced funding arrangements -- and business profile.

On the other hand, the rating could be downgraded if: (1) CITIC Resources embarks on a larger-than-expected debt-funded acquisition, or if such an acquisition entails a high level of implementation risk; (2) it suffers losses in its commodity import and export businesses; (3) it breaches the financial covenants on its syndicated loans, such that its liquidity position is further weakened; or (4) its financial profile remains weak, as evidenced by high debt leverage, with adjusted debt/EBITDA exceeding 10x and adjusted EBITDA/interest falling below 1.0x for a prolonged period.

Any weakening in the relationship with CITIC Group -- thereby lowering the support level -- will be negative for the rating.

A downgrade of CITIC Group's rating would lead Moody's to revisit its assumptions of support and hence the uplift in CITIC Resources' ratings.

The principal methodology used in this rating was Global Independent Exploration and Production Industry published in December 2011. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

CITIC Resources Holdings Limited is an energy and natural resources investment holding company, with interests in aluminum smelting, coal, import and the export of commodities, manganese, bauxite mining and alumina refining operations, as well as the exploration, development and production of oil. The company serves as the principal natural resources and energy arm of its parent, CITIC Group.

The Local Market Analyst for this rating is Pingping Xing, +86 (10) 6319 6561.

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 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.

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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.

Joe Morrison
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
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 changes CITIC Resources' Ba3 rating outlook to negative
No Related Data.
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