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Rating Action:

Moody's downgrades Vinacomin's rating to B2

15 Dec 2010

Action follows the downgrade of Vietnamese government's debt rating to B1 with a negative outlook

Singapore, December 15, 2010 -- Moody's Investors Service has today downgraded Vietnam National Coal and Minerals Holding Corporation Limited's (Vinacomin) corporate family rating to B2 from Ba3. The outlook for the rating is stable.

This completes the review for possible downgrade that commenced on December 1, 2010. This review was prompted by the possible default of Vietnam Shipbuilding Industry Group (Vinashin) on its repayment of a foreign currency loan, and the potential implications for Moody's expectations of government support for Vietnam's other state-owned enterprises, such as Vinacomin.

RATINGS RATIONALE

"The rating action follows Moody's decision to downgrade Vietnam's sovereign rating to B1/Negative and the expectation of a lowering in the Vietnam government's willingness and ability to support Vinacomin in distress," says Alan Greene, a Moody's Vice President and Senior Credit Officer.

Vinacomin's B2 rating is now in line with its Baseline Credit Assessment (BCA) of 15, which is equivalent to the B2 level under Moody's Global Rating Scale.

Despite being 100%-owned by the Vietnamese government, there is now no uplift afforded to it based on Moody's expectation of moderate -- reduced from high -- support from its parent, under the joint default analysis approach for government-related issuers.

"Notwithstanding this weakened level of government support, we continue to recognize Vinacomin's relatively strong financial profile, as shown by its credit metrics -- such as debt/EBITDA below 3 times and interest cover above 6 times -- and its vital role in the power-hungry domestic economy," adds Greene.

The B2 rating further reflects the highly supportive nature of the regulatory and political environment, and which should continue in the medium term.

The company's operating strengths are supported by its monopoly position in the domestic market and its demonstrated access to funds for its substantial coal, minerals and power expansion projects.

At the same time, the rating recognizes key challenges such as (1) Vinacomin's largely debt-funded capex program, including two bauxite/alumina projects, and its move into power generation; (2) the standard, quality and timeliness of Vinacomin's consolidated reporting, as well as issues pertaining to the regulatory environment and the emerging market risks arising from operating in Vietnam; and (3) the limited degree of clarity regarding long-term shareholder intentions and strategic direction, and which are compounded by its complex group structure.

Moody's considers that any positive rating movement for Vinacomin is unlikely without a commensurate change in the government's rating and/or Moody's revision of its expectations of the support level to be applied to Vinacomin. The rating could also experience upward pressure should Moody's concerns over the quality of the company's consolidated financial reporting ease, and clarity regarding its strategy and the financial extent of its role in national development is forthcoming. A clear and sustained shift towards market prices for its products would probably lead to markedly stronger credit metrics and be positive for the rating.

On the other hand, downward pressure on the rating could emerge should 1) the quality and timeliness of Vinacomin's financial reporting deteriorate, or 2) Vinacomin takes on further, or expands existing development projects, such that adjusted debt/EBITDA remains above 4.0-4.5x for an extended period.

In addition, a further downgrade of the Vietnamese government's rating to below that of Vinacomin may trigger a further downgrade for the company.

The last rating action on Vinacomin was taken on December 1, 2010 when the company's Ba3 corporate family rating was placed under review for possible downgrade after the increased likelihood of default by Vinashin.

The principal methodology used in this rating was Global Mining Industry published in May 2009.

Vinacomin is the largest coal producer in Vietnam, accounting for over 95% of total domestic coal production. The company is also engaged in power generation, mineral exploration and smelting, and other operations related to its core coal and minerals business.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Singapore
Alan Greene
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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Peter Choy
Senior Vice President
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's downgrades Vinacomin's rating to B2
No Related Data.
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