Hong Kong, December 23, 2019 -- Moody's Investors Service ("Moody's") has downgraded to B1 from Ba3 Tianqi
Lithium Corporation's ("Tianqi Lithium") corporate family rating 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 mainly reflects the materially smaller-than-expected
proceeds from Tianqi Lithium's rights issue," says Gerwin
Ho, a Moody's Vice President and Senior Credit Officer. "Such
a situation will result in the company's slower-than-expected
deleveraging and tighter-than-expected liquidity; two
factors that position the company in the B rating category."
"The negative ratings outlook continues to reflect the uncertainty
related to Tianqi Lithium's refinancing plans, weak liquidity position
and weak operations," adds Ho, who is also Moody's Lead Analyst
for Tianqi Lithium.
Tianqi Lithium's leverage increased following its acquisition of a 23.8%
stake in Sociedad Quimica y Minera de Chile S.A. (SQM,
Baa1 stable) in December 2018, which brought its total stake in
the company to 25.9%.
Tianqi Lithium announced a rights issue in which it will issue new shares
totaling 343 million at RMB8.75 per share. If fully subscribed,
the proceeds will total about RMB3.0 billion, which is lower
than the upper range of RMB7.0 billion that Moody's had earlier
expected.
As a result, Tianqi Lithium's financial leverage — as
measured by total debt to EBITDA — should remain elevated at about
7.5x over the next 12 months, with SQM accounted for on an
equity method basis.
While the company's leverage will stay elevated, 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.
Tianqi Lithium's revenue fell by 20% year-on-year
in the first nine months of 2019, amid declining lithium chemical
prices. Nevertheless, Moody's expects that the company will
grow its revenue over the next 12-18 months, because increased
sales volumes will offset lower prices.
At the same time, any greater volatility in lithium chemical prices
than Moody's currently expects 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.
Nevertheless, 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.
Tianqi Lithium's B1 corporate family rating reflects the positive demand
outlook for lithium chemical products, the company's strong position
in the lithium chemical industry, and robust 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.
Environmental, social and governance issues are material to the
rating outcome 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 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. Downward pressure on the rating could emerge,
if the company does not succeed in refinancing all or part of the acquisition
loan through non-debt financing.
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, downward ratings pressure could emerge, if,
over the next 6-12 months, the company fails to execute its
refinancing plan or improve its liquidity position and capital structure
significantly.
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
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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
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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
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