Hong Kong, December 06, 2018 -- Moody's Investors Service has confirmed Tianqi Lithium Corporation's Baa3
issuer rating and the Baa3 senior unsecured rating on the bonds issued
by Tianqi Finco Co., Ltd and guaranteed by Tianqi Lithium.
The ratings outlook is negative.
This rating action concludes the ratings review initiated on 18 May 2018.
RATINGS RATIONALE
"The ratings confirmation reflects Moody's expectation that Tianqi
Lithium will deleverage after its investment in a 23.8%
stake in Sociedad Quimica y Minera de Chile S.A. (SQM,
Baa1 stable), driven by the company's strong operating performance
and non-debt refinancing plan," says Gerwin Ho, a Moody's
Vice President and Senior Credit Officer.
On 4 December 2018, Tianqi Lithium announced that it had completed
the purchase of 62.6 million "A shares" of SQM from Nutrien Ltd.
(Baa2 stable) for a consideration of about USD4.1 billion.
With the purchase, Tianqi Lithium holds a 25.9% stake
in SQM, consisting of a 23.8% stake in the "A
shares" that it acquired from Nutrien and a 2.1% stake
in the "B shares" that it already owns.
Tianqi Lithium's investment in SQM will support the company's leading
position in the lithium mineral and chemical markets, provide geographical
diversification beyond China and Australia and product diversification
beyond lithium-related products, and offer a steady stream
of dividend income.
The company financed the investment with its internal cash and bank borrowings
and had obtained committed facilities of USD3.5 billion from China
CITIC Bank International Limited (A3 stable) and China CITIC Bank Corporation
Limited (Baa2 positive).
Moody's believes that these committed facilities will not impact
Tianqi Lithium's adequate liquidity position, because the
company has the right to extend the maturities of these facilities.
Moody's is also aware that Tianqi Lithium has announced refinancing
plans that are in progress.
On 17 August 2018, the company submitted its application for a second
listing on the Stock Exchange of Hong Kong and the process for the dual
listing is currently in progress. On 9 November 2018, it
announced that it had received approval from the China Securities Regulatory
Commission on the planned second listing.
Tianqi Lithium has also received approvals from its shareholders on an
issuance of convertible bonds of up to RMB5 billion. The proposed
convertible bond will serve as a take-out for the company's
bridge financing, according to Tianqi Lithium's announcement.
Moody's views the proposed convertible bond as debt only until it
is converted into equity.
Tianqi Lithium's Baa3 issuer rating also reflects the positive demand
outlook for lithium chemicals products, the company's strong position
in the lithium chemicals industry, its expansion of scale from capacity
additions, and its robust profitability, driven by the improved
operating efficiency of its chemical production facilities in Australia.
On the other hand, the negative outlook reflects Moody's concern
that the company's capital structure could weaken and its financial flexibility
decline if its non-debt refinancing plans do not proceed as expected.
Such a development would pressure its ratings.
Moody's estimates that Tianqi Lithium's leverage, as measured
by adjusted debt/EBITDA, with SQM accounted for on an equity method
basis, will rise after the SQM investment, but will improve
to about 3.3x in 2019 and about 2.4x in 2020. The
deleveraging will be supported by the company's planned second listing
on the Stock Exchange of Hong Kong and a rise in EBITDA, in turn
reflecting a rise in lithium chemical sales, driven by the company's
capacity additions and the growth in demand.
Tianqi Lithium's outlook could return to stable if the company manages
to execute its refinancing plan, maintain its strong operating performance
and deleverage with debt/EBITDA trending below 2.50x-2.75x
over the next 12-18 months.
Downward rating pressure could emerge, if the company fails to deleverage
such that its adjusted debt/EBITDA exceeds 2.50-2.75x
on a sustained basis.
The principal methodology used in these ratings was Chemical Industry
published in January 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Headquartered in Chengdu in 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 the Greenbushes lithium mine in Western Australia. Furthermore,
it owns a 25.9% stake in Chilean chemical producer Sociedad
Quimica y Minera de Chile S.A. (SQM, Baa1 stable).
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
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
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
Clement Cheuk Yiu Wong
Associate Managing Director
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
