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Rating Action:

Moody's upgrades CITIC Resources to Ba3; outlook stable

 The document has been translated in other languages

27 Mar 2018

Hong Kong, March 27, 2018 -- Moody's Investors Service has upgraded CITIC Resources Holdings Limited's (CITIC Resources) corporate family rating to Ba3 from B1.

At the same time, Moody's has changed the rating outlook to stable from negative.

RATINGS RATIONALE

"The upgrade of CITIC Resources' corporate family rating to Ba3 reflects our expectation that the company will sustain its trend of improvement in debt leverage," says Chenyi Lu, a Moody's Vice President and Senior Credit Officer, and the International Lead Analyst for CITIC Resources.

"Furthermore, the rating action also reflects our expectation that the company's liquidity conditions will prove satisfactory over the next 12 to 18 months," says Jin Wu, a Moody's Vice President and Senior Credit Officer, and also the Local Market Lead Analyst for CITIC Resources.

CITIC Resources has exhibited a trend of debt deleveraging. As such, debt/EBITDA (not including adjustments for its joint-venture oil businesses) improved to 8.4x at the end of 2017 from 13.3x at the end of 2016, driven by improving earnings on the back of recovering crude oil prices and its modest level of debt reduction in 2017.

Moody's expects debt/EBITDA will fall to around 7.9x -7.8x over the next 12 to 18 months as crude oil prices are unlikely to decline materially and as the company's production will increase as capital expenditures are implemented.

CITIC Resources' liquidity position has also improved after it refinanced two term loans, including a USD490 million term loan with a 5-year shareholder loan of USD500 million, in June 2017.

Moreover, the company had a cash balance of HKD1.4 billion at the end of 2017 which was sufficient to cover its short-term debt of HKD386 million at that time, planned capital expenditures, and dividends of HKD196 million over the next 12 months.

CITIC Resources' Ba3 corporate family rating reflects the company's standalone credit profile and a three-notch uplift based on Moody's assessment of a high likelihood of extraordinary financial support from its parent CITIC Group Corporation (CITIC Group, A3 negative) in a financial distress situation.

The extraordinary financial support has considered (1) CITIC Resources' important role as an overseas platform for resources development within the CITIC Group; (2) the high reputational risk for CITIC Group, should CITIC Resources default; and (3) the track record of parental support, as evidenced by the provision of a USD500 million shareholder term loan in 2017.

CITIC Resources' standalone credit profile further reflects the company's established production record at its Karazhanbas oilfield and the improvements in the profitability of its Seram Block and Yuedong oilfield.

On the other hand, its standalone credit profile is constrained by (1) its small scale in the oil exploration and production (E&P) business; (2) the fluctuations in its revenues owing to the volatility in oil, coal and metal prices; and (3) its still weak credit metrics.

The stable outlook reflects Moody's expectations that CITIC Resources' operational profile will remain largely stable, and that the company will sustain its trend of deleverage and continue to obtain financial support from its parent, CITIC Group.

CITIC Resources' Ba3 rating could experience upgrade pressure if the company (1) grows its business scale, (2) shows improvements in the production and debt capital structure of its oilfields, including those under joint ventures; and (3) reduces its debt leverage, such that E&P debt/average daily oil production is below USD30,000 or adjusted debt/EBITDA is below 6.0x on a sustained basis.

On the other hand, the rating would experience downgrade pressure if Moody's assesses that parental financial support for the company has weakened. Such a situation could be caused by a decline in the strategic importance of CITIC Resources to its parent, a decline in the shareholding held by CITIC Group, or a material weakening of CITIC Group's credit quality.

The principal methodology used in this rating was Independent Exploration and Production Industry published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CITIC Resources Holdings Limited is an energy and natural resources investment holding company, with interests in aluminum smelting; coal; import and the export of commodities; manganese; and bauxite mining and alumina refining. It also has interests in the exploration, development and production of oil. The company serves as the principal natural resources and energy arm of its parent, CITIC Group.

The Local Market analyst for this rating is Jin Wu, +86 (21) 20574021.

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.

Chenyi Lu
VP - Senior Credit Officer
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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