Hong Kong, November 03, 2015 -- Moody's Investors Service has downgraded the corporate family rating
of Yanzhou Coal Mining Co. Ltd. and the senior unsecured
debt ratings of Yancoal International Resources Development Co.,
Ltd and Yancoal International Trading Co., Limited to Ba3
from Ba2.
The ratings outlook has been changed to stable from negative.
RATINGS RATIONALE
"The downgrade reflects Yanzhou Coal's weakened credit profile
owing to declining thermal coal prices, which are unlikely to recover
in the near term," says Dylan Yeo, Moody's Lead
Analyst for Yanzhou Coal.
Yanzhou Coal is negatively affected by the weak thermal coal prices.
The Qinhuangdao 5500 thermal coal price index fell to an average price
of RMB464 per tonne in the six months ended June 2015 from the average
price of RMB701 per tonne in 2012.
In Moody's view, a turnaround in thermal coal prices is unlikely
because China's (Aa3 stable) economy will continue to be slow in
2016.
Yanzhou Coal has reduced its operating costs through downsizing its workforce,
tighter controls over raw material consumption and optimizing its operating
processes.
In addition, it has cut losses at its Australian subsidiary --
Yancoal Australia Limited (unrated) -- which achieved a
95% reduction in EBIT losses in 1H 2015 compared with 2013.
But its credit metrics have been materially affected by the continued
weakness in thermal coal prices.
The company's net debt/EBITDA increased to 7.5x in the 12
months ended 30 June 2015 from 6.4x at end-2014.
Moody's expects this debt leverage ratio to exceed 9.0x in
2016 as it needs to ramp up its more cost efficient mines to combat the
low thermal coal prices.
Such high debt leverage positions the company's standalone credit
profile closer to Moody's-rated global peers in the mid-B
level.
Yanzhou Coal's standalone credit profile reflects its low-cost
mines and good infrastructure supporting thermal coal demand in the economically
strong Shandong Province, as well as the company's interest
in mining assets in China and Australia (Aaa stable).
In addition, it considers the company's state-owned
status and significant scale that enable it to have good access to bank
finance and capital markets in China.
"We expect the provincial government of Shandong will continue to
provide a high level of support to Yanzhou Coal and its parent,
Yankuang Group Corporation Limited (unrated)," says Yeo.
Yanzhou Coal's Ba3 rating factors a 2-notch uplift for parental
support, reflecting Yanzhou Coal's dominant position and strategic
importance as Yankuang's flagship company. It also reflects
Yankuang's track record of providing financial support, including
guarantees on about 20% of Yanzhou's outstanding debt and
asset injections.
Yankuang is a large provincial state-owned enterprise (SOE) that
is wholly-owned by the Shandong State-owned Assets Supervision
and Administration Commission (SASAC) (unrated).
As one of the top mining companies in China, its large scale in
the strategic resource sector as well as extensive work force enable it
to minimize the regulatory risks evident in China and enjoy good access
to low-cost funding.
Moreover, Yankuang is a key corporation that will engage in the
SOE reform initiative under the direction of the Shandong SASAC.
Moody's expects any likely extraordinary government support will
pass through Yankuang to Yanzhou Coal, as the group accounts for
almost one quarter of total coal production in Shandong.
Yanzhou's strong liquidity position enables it to weather through
the coal cycles. It reported cash of RMB21.4 billion at
end-September 2015, which together with internally generated
cash flow, is adequate to fund internal cash needs in the next 12
months, including maintenance capital expenditure and short-term
debt maturities.
The stable rating outlook reflects Moody's expectation that Yanzhou
Coal will be prudent in its capital expenditure and maintain its strong
liquidity position, which includes stable financing at its Australian
subsidiary.
Upward rating pressure could arise if the company (1) can turn around
its Australian operations; (2) improves its financial profile,
such that its net adjusted debt/EBITDA is below 6.0x and EBITDA/interest
is maintained above 2.5-3.0x on a consistent basis.
On the other hand, downward rating pressure could emerge if Yanzhou
Coal's credit profile deteriorates further due to failure to turn
around its Australian operations, a material disruption in its operations
due to non-compliance with mining regulations, or material
weakening in its liquidity profile.
Indicators for downward rating pressure include net debt/EBITDA continuously
exceeding 9.0x--10x on a sustained basis.
Any material reduction in the Yankuang Group's ownership in Yanzhou
Coal would be negative to the ratings.
The principal methodology used in these ratings was Global Mining Industry
published in August 2014. Please see the Credit Policy page on
www.moodys.com for a copy of this methodology.
Yanzhou Coal Mining Co. Ltd. was listed in Shanghai,
Hong Kong and New York in 1998. It is 56.52%-owned
by the Yankuang Group Corporation Limited, a state-owned
enterprise that is wholly owned by the Shandong State-Owned Assets
Supervision and Administration Commission.
At end-2014, the company owned and operated 20 coal mines
across China and Australia. It also owned abundant coal resources
in China's Shandong and Shanxi provinces, the Inner Mongolia Autonomous
Region, as well as in the Australian states of Queensland,
New South Wales and Western Australia.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Dylan Yeo
Analyst
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.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's downgrades Yanzhou Coal's Ba2 ratings to Ba3; outlook stable