Hong Kong, April 12, 2018 -- Moody's Investors Service has upgraded to Ba3 from B1 the corporate family
rating of Yanzhou Coal Mining Company Limited.
Moody's has also upgraded to Ba3 from B1 the senior unsecured debt rating
on the bonds issued by Yancoal Int'l Resources Development Co.,
Ltd and guaranteed by Yanzhou Coal.
The ratings outlook is stable.
RATINGS RATIONALE
"The upgrade reflects our expectation that Yanzhou Coal's
improved credit metrics will be sustained over the next 12-18 months,"
says Gerwin Ho, a Moody's Vice President and Senior Credit Officer,
and also the International Lead Analyst for Yanzhou Coal.
Yanzhou Coal recorded a good performance in 2017, with its revenues
and adjusted EBITDA up 58% and 93% year-on-year,
respectively. Its EBITDA margins also increased to 37.5%
in 2017 from 30.8% in 2016.
These improvements stemmed from a 26.1% year-on-year
increase in the average selling price of the company's produced
coal, while its production volume also increased 28.2%
year-on-year to 79.9 million tons.
Accordingly, Yanzhou Coal's adjusted debt/EBITDA and EBIT/interest
improved to 4.4x and 3.5x in 2017 from 7.2x and 1.8x
in 2016.
"Moody's expects the Chinese government's supply-side
reforms for the coal industry will help stabilize domestic coal prices,"
says Cindy Yang, a Moody's Assistant Vice President and Analyst,
and also the Local Market Analyst for Yanzhou Coal.
In addition, Moody's expects Yanzhou Coal's production
volume will increase to around 100 million tons in 2018 from 79.9
million tons in 2017 due to the full-year contribution from its
newly acquired Coal & Allied mines as well as production ramp-up
in its new mines, including Ordos, Haosheng and Moolarben
Phase II.
Accordingly, Moody's expects that the company will maintain
its improved credit metrics, with debt/EBITDA below 5.0x
and EBIT/interest around 3.0x. These levels support its
standalone credit profile.
Yanzhou Coal's Ba3 corporate family rating incorporates a two-notch
uplift from Moody's expectation of extraordinary financial support
from the Shandong Provincial Government through Yanzhou Coal's parent
Yankuang Group Corporation Limited in times of financial distress.
Moody's support assumption considers (1) Yankuang Group's 100%
ownership by the Shandong Provincial Government; (2) Yanzhou Coal's
dominant position and strategic importance as the group's flagship company
and the continued support from the provincial government for both Yanzhou
Coal and Yankuang Group; (3) the importance of Yanzhou Coal's mining
assets to the Shandong Province in terms of economic contributions and
employment; (4) Yankuang Group's 55.25% direct and
indirect stake in Yanzhou Coal as of 31 December 2017, and the control
it has over its board of directors and appointment of senior management;
and (5) Yankuang Group's track record of providing financial support to
Yanzhou Coal.
The Shandong Provincial Government's standalone ability to provide support
is based on its status as an upper-tier regional and local government
with national strategic importance.
These factors are counterbalanced by the primarily commercial nature of
Yanzhou Coal's operations, which results in a lower likelihood of
support from the government than for entities with significant public
policy mandates.
The company's standalone credit profile is underpinned by its (1) diversified
coal mining assets and good related infrastructure, and (2) good-quality
coal and low-cost mining operations in Shandong Province.
These strengths are partly offset by (1) its moderately high debt leverage
following years of expansion and acquisitions; and (2) execution
and financial risks from its investments in the financial sector.
The stable outlook incorporates Moody's expectation that over the
next 12-18 months (1) the company's credit metrics will be maintained
at levels appropriate for its current standalone credit quality;
(2) there will be no material change in its overall business profile,
its strategic importance to its parent and the parent's ability to provide
support; and (3) Yanzhou Coal will not increase substantially its
investments in the financial sector.
Yanzhou Coal's ratings could be upgraded if the company shows improvements
and more stability in its financial profile, and absent material
changes in the parental support assessment.
Credit metrics indicative of upward rating pressure include adjusted debt/EBITDA
below 3.5x-4.0x and EBIT/interest above 3.5x
on a sustained basis.
The two-notch uplift for expected government support through Yankuang
Group is unlikely to be increased, given the primarily commercial
nature of Yanzhou Coal's operations.
Yanzhou Coal's ratings would be downgraded if there is a material deterioration
in its business or financial profile.
Credit metrics indicative of downward rating pressure include adjusted
debt/EBITDA above 5.5x and/or EBIT/interest below 2.0x.
The ratings could also be downgraded if Moody's expects a decline
in parental support due to a decline in the importance of Yanzhou Coal
to its parent, a material weakening of the parent's credit quality,
or reduced linkage with the Shandong Provincial Government.
The principal methodology used in these ratings was Mining Industry published
in April 2018. 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 and Hong Kong
stock exchanges in 1998. As of 31 December 2017, it was 55.25%-owned
by Yankuang Group Corporation Limited, a state-owned enterprise
that is in turn wholly owned by the Shandong Provincial Government.
As of 31 December 2017, Yanzhou Coal owned and operated various
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 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