Hong Kong, April 09, 2020 -- Moody's Investors Service has affirmed the Ba2 corporate family
rating (CFR) of CITIC Resources Holdings Limited.
At the same time, Moody's has changed the rating outlook to
negative from stable.
RATINGS RATIONALE
"The negative outlook reflects our expectation that CITIC Resources'
EBITDA and cash flow will take a hit from the low oil and commodity prices
over the next 12 months, in turn weakening its credit metrics,"
says Chenyi Lu, a Moody's Vice President and Senior Credit Officer,
and the International Lead Analyst for CITIC Resources.
Moody's expects oil prices to average $40-$45 per
barrel in 2020 and $50-$55 per barrel in 2021.
Under these prices, the company's adjusted debt/EBITDA will
rise to 9.7x by the end of 2020, which is high for its current
standalone credit strength.
"Nevertheless, our affirmation of the CFR reflects CITIC Resources'
strong liquidity position, track record of reducing debt over the
last two years, and its plans to suspend dividend payments,
contain capital expenditures and control operating costs in 2020,"
says Jin Wu, a Moody's Vice President and Senior Credit Officer,
and also the Local Market Lead Analyst for CITIC Resources.
The company's cash balance/short-term debt registered a still
healthy 1.36x at the end of December 2019. Moreover,
the company has stable debt funding, because 75.8%
of its borrowings were provided by CITIC Limited (A3 stable), a
key shareholder.
CITIC Resources' Ba2 corporate family rating reflects its standalone
credit profile and a three-notch uplift based on Moody's
assessment of a high likelihood of extraordinary support from its parent
CITIC Group Corporation (CITIC Group, A3 stable) in times of financial
stress.
Moody's support assessment considers (1) CITIC Resources' role within
CITIC Group as the overseas platform for natural resource acquisitions
and development; (2) the high reputational risk for CITIC Group if
CITIC Resources were to default; and (3) the track record of parental
support, as demonstrated by the $500 million shareholder
loan granted to the company in 2017.
CITIC Resources' standalone credit profile also reflects (1) its production
track record at its Karazhanbas oil field; (2) its moderately diversified
portfolio of resources, including oil, coal and other metals;
and (3) the financial and liquidity management oversighted by its state-owned
shareholder.
On the other hand, its standalone credit profile is constrained
by (1) its small scale in the oil exploration and production (E&P)
sectors; (2) its exposure to the volatility in oil, coal and
metal prices; and (3) its modest credit metrics.
In terms of environmental, social and governance (ESG) factors,
CITIC Resources' main oil and gas E&P operations are exposed to elevated
carbon transition risk over the long term. However, the company
supplies oil and gas products to China, a large-scale economy
with sustained demand for oil and gas.
In addition, the company's good track record of operating in the
oil and gas E&P sector has limited accidents and environmental hazards.
CITIC Resources demonstrates reasonable transparency in its information
disclosure and has a seven-member board of directors with three
independent non-executive directors, in accordance with the
listing requirements of the Hong Kong Stock Exchange. Moreover,
the company is supervised by its state-owned parent, which
reports to the State Council of China through the Ministry of Finance.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Given the negative outlook, an upgrade of the company's CFR
is unlikely. However, the rating outlook could return to
stable if CITIC Resources reduces its debt/EBITDA to 6.5x on a
sustained basis and maintains strong liquidity.
On the other hand, downward rating pressure could emerge if (1)
parental support for the company weakens; or (2) the company's debt
leverage remains elevated and is unlikely to trend towards debt/EBITDA
6.5x over a prolonged period.
The principal methodology used in this rating was Independent Exploration
and Production Industry published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1056808.
Alternatively, please see the Rating Methodologies 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; and bauxite
mining and alumina refining. It also has interests in 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 Jin Wu, +86 (212)
057-4021.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and
sensitivity analysis, see the sections Methodology Assumptions and
Sensitivity to Assumptions in the disclosure form. Moody's
Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed
by Moody's Deutschland GmbH, An der Welle 5, Frankfurt
am Main 60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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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.
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
Peter Choy
Senior Vice President
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
