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Rating Action:

Moody's reviews Yanzhou Coal's B2 ratings for upgrade

 The document has been translated in other languages

09 Aug 2017

Hong Kong, August 09, 2017 -- Moody's Investors Service has placed under review for upgrade, Yanzhou Coal Mining Company Limited's B2 corporate family rating, as well as the B2 backed senior unsecured rating on the bonds guaranteed by Yanzhou Coal and issued by its subsidiary, Yancoal International Resources Development Co., Limited.

The rating action follows the announcement on 1 August 2017 by Yancoal Australia — a 78% subsidiary of Yanzhou Coal — of its plan to raise approximately $2.5 billion in equity to fund its acquisition of Australia-based, Coal & Allied Industries Limited.

Yancoal Australia will launch a 23.6 for 1 pro-rata renounceable entitlement offer to raise approximately $2.35 billion. Yanzhou Coal has committed to take up $1.0 billion of its share under the entitlement offer. The balance of the entitlement offer of around $1.3 billion is underwritten by investors, including Glencore Coal Pty Ltd. which will take up $300 million.

In addition, Yancoal Australia will raise $150 million in new shares, $100 million of which are committed by Shandong Taizhong Energy Co., Ltd, and $50 million of which by General Nice Development Ltd.

RATINGS RATIONALE

"The review for upgrade of Yanzhou Coal's ratings reflects our expectation that Yancoal Australia's financial profile and operations will improve, upon the successful completion of the Coal & Allied acquisition," says Gerwin Ho, a Moody's Vice President and Senior Analyst, and also the International Lead Analyst for Yanzhou Coal.

Coal & Allied owns majority interests in three of the 10 largest low-cost mines in Australia. The mines produce high quality thermal coal products which are of high demand among power generating companies in Asia. The low cost and high level of demand result in these mines showing profitable operations.

The successful acquisition of these mines by Yancoal Australia through the equity issuance would increase Yancoal Australia's size and turn its operations profitable from the current loss position.

Such an improvement in Yancoal Australia's profitability would in turn facilitate debt deleveraging at Yanzhou Coal, because Yancoal Australia will remain a 65%-owned subsidiary of Yanzhou Coal, upon completion of the equity raising as currently planned, and the conversion of Yanzhou Coal's subordinated capital notes in Yancoal Australia into equity.

These developments could result in upward pressure on Yanzhou Coal's B2 corporate family rating. The current rating includes a two-notch uplift to reflect Moody's expectation of extraordinary financial support from its parent, Yankuang Group Corporation Limited — which is in turn wholly owned by the Shandong Provincial Government — in cases of financial distress.

As part of its review, Moody's will focus on the following six factors:

(1) Any change in the extraordinary financial support available to Yanzhou Coal from the Yankuang Group;

(2) Any change in Yanzhou Coal's significant role in the coal industry in Shandong Province;

(3) Yanzhou Coal's liquidity position and access to financing from Chinese banks, in view of the material levels of short-term debt that require refinancing;

(4) Yanzhou Coal's levels of capital expenditures and debt leverage over the next two years;

(5) Yanzhou Coal's ability to raise $1 billion in equity to fund its participation in Yancoal Australia's equity raising; and

(6) Yankuang Group's ability to provide funding to Yanzhou Coal in the event that the proceeds from the entitlement offer and the share placement fall short of $2.5 billion.

The principal methodology used in these ratings was Global Mining Industry published in August 2014. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Yanzhou Coal Mining Company Limited listed on the Shanghai, Hong Kong and New York stock exchanges in 1998. At end-2016, it was 56.6%-owned by Yankuang Group Corporation Limited, a state-owned enterprise that is in turn wholly owned by the Shandong Provincial Government.

At 31 December 2016, Yanzhou Coal owned and operated 18 coal mines across China and Australia, including in Shandong and Shanxi provinces and the Inner Mongolia Autonomous Region in China, as well as in the Australian states of Queensland, New South Wales and Western Australia.

The Local Market analyst for these ratings is Cindy Yang, +86 (10) 6319-6570.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Gerwin Ho
Vice President - Senior 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
Client Service: 852 3551 3077

Gary Lau
MD - Corporate Finance
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

No Related Data.
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