Hong Kong, March 25, 2020 -- Moody's Investors Service has downgraded to Caa1 from B2 Tianqi Lithium
Corporation's corporate family rating (CFR). Moody's has
also downgraded the senior unsecured rating on the bonds issued by Tianqi
Finco Co., Ltd and guaranteed by Tianqi Lithium to Caa2 from
B2.
The ratings outlook remains negative.
RATINGS RATIONALE
"The ratings downgrade reflects Tianqi Lithium's very strained capital
structure as a result of its high debt burden, elevated leverage
and weak liquidity," says Gerwin Ho, a Moody's Vice
President and Senior Credit Officer.
"These factors have increased 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)," adds Ho.
Refinancing risk is further exacerbated by the rapid and widening spread
of the coronavirus outbreak, deteriorating global economic outlook,
falling oil prices, and asset price declines that are creating a
severe and extensive credit shock across many sectors, regions and
markets. The combined credit effects of these developments are
unprecedented.
Tianqi Lithium's leverage has 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 8.8x
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 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.
Tianqi Lithium has yet to make progress in improving its capital structure,
including the repayment of the portion of its acquisition loan due in
November 2020, since it completed a rights issue in December 2019.
Tianqi Lithium's rating is constrained by its product concentration
in lithium minerals and lithium chemicals, with limited revenue
scale, and exposure to regulatory risks. These weaknesses
offset the company's strong position in the lithium chemical industry
and good profitability, driven by its supply of low-cost
lithium minerals.
Tianqi Lithium's senior unsecured bond rating is one notch lower
than it would otherwise be because of the risk of structural and legal
subordination. This risk reflects the facts that (1) the majority
of claims are at the operating subsidiaries; and (2) a large share
of the company's debt is secured debt due to the SQM acquisition.
These claims have priority over Tianqi Lithium's senior unsecured
claims in a bankruptcy scenario. In addition, the holding
company lacks significant mitigating factors for structural subordination.
As a result, the expected recovery rate for claims at the holding
company will be lower.
The negative 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.
The company benefits from global trends to reduce carbon emissions,
because lithium is a core input into the manufacture of electric vehicles.
Its mining and chemical production operations are also exposed to environmental
and safety risks. Nonetheless, Moody's is not aware
of any major environmental or safety incidents.
Moody's regards the coronavirus outbreak as a social risk under
its ESG framework, given the substantial implications for public
health and safety. Today's action also reflects the impact
on Tianqi Lithium of the breadth and severity of the shock, and
the broad deterioration in credit quality the event has contributed to.
From a governance perspective, 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 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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this Credit Rating.
Gerwin Ho
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
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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
