Hong Kong, February 05, 2020 -- Moody's Investors Service has downgraded to B2 from B1 Tianqi Lithium
Corporation's corporate family rating (CFR) and the senior unsecured rating
on the bonds issued by Tianqi Finco Co., Ltd and guaranteed
by Tianqi Lithium.
The ratings outlook remains negative.
RATINGS RATIONALE
"The ratings downgrade reflects Tianqi Lithium's reduced financial
flexibility as a result of its weakened capital structure, which
in turn will raise refinancing risk, in particular with regard to
the November 2020 maturity of part of the loan associated with its acquisition
of a stake in Sociedad Quimica y Minera de Chile S.A. (SQM,
Baa1 stable)," says Gerwin Ho, a Moody's Vice President and
Senior Credit Officer.
In an announcement dated 3 February 2020, the company announced
it expects a RMB2.6-RMB3.8 billion net loss for 2019,
revised significantly from the RMB80-RMB120 million net profit
it guided in late October 2019.
The updated guidance includes an estimated RMB2.2 billion impairment
charge related to its 25.9% stake in SQM, which Tianqi
Lithium reports as long-term investment on an equity method basis.
This impairment charge could materially reduce Tianqi Lithium's
equity base.
Tianqi Lithium's leverage increased significantly following its acquisition
of a 23.8% stake in SQM in December 2018, which brought
its total stake in the company to 25.9%.
Moody's expects Tianqi Lithium's financial leverage — as measured
by total debt to EBITDA — will remain elevated at about 8.5x
over the next 12 months, with SQM accounted for on an equity method
basis.
At the same time, volatility in lithium chemical prices and a slower
than expected ramp up at its lithium chemical production operations in
Australia could weaken the company's cash flow generation and delay deleveraging.
Tianqi Lithium's liquidity is weak. At 30 September 2019,
the company's cash reserves — including restricted cash —
of RMB1.7 billion were insufficient to cover its short-term
debt of RMB3.1 billion.
Moody's expects that the company will be able to roll over its debt with
banks, given its strong market position.
The company also has a track record of access to diversified funding channels,
including onshore debt instruments such as medium-term notes,
and equity fund raising from its listing in Shenzhen.
Moody's notes that Tianqi Lithium has plans to improve its capital
structure, including the repayment of the portion of its acquisition
loan due in November 2020, through other financing plans.
Moody's will monitor the progress of such plans; and any failure
to execute on such plans could further pressure its ratings.
Tianqi Lithium's B2 CFR reflects the positive demand outlook for lithium
chemical products, the company's strong position in the lithium
chemical industry, and good profitability, driven by its supply
of low-cost lithium minerals.
On the other hand, the rating is constrained by Tianqi Lithium's
product concentration in lithium minerals and lithium chemicals,
with limited revenue scale, and exposure to regulatory risks.
The negative ratings outlook reflects the uncertainty related to Tianqi
Lithium's refinancing plans, weak liquidity position and weakened
operations.
Environmental, social and governance (ESG) issues are material to
the ratings and were assessed as follows.
First, the company benefits from global trends to reduce carbon
emissions, because lithium is a core input into the manufacture
of electric vehicles.
Second, its mining and chemical production operations are exposed
to environmental and safety risks.
Third, Tianqi Lithium's ownership is concentrated and only a minority
of its board consists of independent directors. Moreover,
the company's debt-funded acquisition of a 23.8%
stake in SQM hints at an aggressive financial policy.
The outlook on Tianqi Lithium's ratings could return to stable if the
company executes its refinancing plan, and improves its liquidity
position and capital structure significantly.
Conversely, the ratings could be downgraded if the company fails
to execute its refinancing plan or fails to significantly strengthen its
liquidity position and capital structure.
The senior unsecured rating is exposed to legal and structural subordination,
because a substantial portion of the liabilities are at the operating
company level, and there is secured lending related to the acquisition
financing. The rating could be downgraded if the company does not
succeed in refinancing all or part of the acquisition loan through non-debt
financing.
The principal methodology used in these ratings was Chemical Industry
published in March 2019. 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 the Greenbushes lithium mine in
Western Australia. It also owns a 25.9% stake in
Chilean chemical producer, Sociedad Quimica y Minera de Chile S.A.
REGULATORY DISCLOSURES
For ratings issued on a program, series, category/class of
debt or security this announcement provides certain regulatory disclosures
in relation to each rating of a subsequently issued bond or note of the
same series, category/class of debt, security or pursuant
to a program for which the ratings are derived exclusively from existing
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The first name below is the lead rating analyst for this Credit Rating
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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.)
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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