Hong Kong, September 18, 2014 -- Moody's Investors Service has downgraded to Caa3 from Caa2 the rating
for the US$400 million 8.625% senior unsecured notes
due November 2015 ("2015 Notes") issued by Hidili Industry International
Development Limited.
At the same time, Moody's has downgraded Hidili's corporate family
rating to Caa2 from Caa1.
The outlook for all ratings is negative.
RATINGS RATIONALE
The rating action follows Hidili 's announcement on 17 September 2014
that it is commencing a tender offer and consent solicitation for the
2015 Notes.
The exchange offer, which is subject to consent from the company's
bondholders, includes:
1. Amendments and waivers eliminating substantially all of the
restrictive covenants and certain other provisions contained in the existing
bond indenture; and
2. The waiving of any actual and potential defaults and events
of defaults that have occurred or are continuing.
The date of expiration for the tender offer is 14 October 2014 and the
settlement date is expected to be on 21 October 2014.
Early tender offers are entitled to receive:
1. The Early Tender Consideration, i.e. US$680
per US$1,000 principal amount of Notes tendered, and
2. The Consent Payment i.e. US$20 per US$1,000
principal amount of the Notes on or prior to the Consent Expiration Date.
"If successful, the transaction will constitute a distressed debt
exchange, which is a default event under Moody's definition.
The downgrade of the 2015 Notes to Caa3 considers this default and our
assessment of the high economic loss of around 30% when compared
to the original payment promise for the Notes," says Simon Wong,
a Moody's Vice President and Senior Credit officer/Manager.
"Moreover, the downgrade of Hidili's corporate family rating to
Caa2 from Caa1 reflects our concern that the company will continue to
face significant liquidity stress after the transaction closes as proposed,"
adds Wong.
The company would be funding payment of the early tender considerations
from cash on hand and further bank borrowings.
Despite such a benefit, the Caa2 corporate family rating reflects
the company's significant liquidity stress levels, even after the
proposed transaction is concluded.
This significant liquidity stress levels arises from :
1. the company's small unrestricted cash holding -- RMB194
million versus sizable short term debt as of end-June 2014.
2. uncertainty over whether the company is able to generate sufficient
cash flows from operations, asset disposals, to meet its other
debt obligations in view of continued operating losses and operation disruptions.
The negative outlook reflects uncertainty over whether the exchange offer
and consent solicitation will be successfully completed; that after
the transaction, the company's liquidity position is expected to
remain significantly stressed -- if there are not any material
equity injections -- and the consideration that its operating
model has severely weakened.
Accordingly, the risk of default remains high.
The principal methodology used in this rating was Global Mining Industry
published in August 2014. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
Hidili Industry International Development Ltd is a vertically integrated
coal mining enterprise in southwest China that supplies coking coal products
to the domestic steel industry. Its predecessor, Panzhihua
City Sanlian Industrial Co Ltd, was established in 2000 as a coal
trading business. In 2003, the company was transformed into
a coal mining company after its first acquisition of five mines and coal
washing and coking facilities.
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.
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 downgrades Hidili's bond rating to Caa3 after tender offer