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Global Credit Research - 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.
"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
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
"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,"
The B2 rating further reflects the highly supportive nature of the regulatory
and political environment, and which should continue in the medium
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 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
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.
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
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Please see the ratings disclosure page on our website www.moodys.com
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Moody's Investors Service Singapore Pte. Ltd.
Moody's downgrades Vinacomin's rating to B2
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