Hong Kong, May 23, 2019 -- Moody's Investors Service has upgraded Yanzhou Coal Mining Company Limited's
corporate family rating to Ba2 from Ba3.
At the same time, Moody's has upgraded to Ba2 from Ba3 the
senior unsecured debt ratings on the bond issued by Yancoal International
Resources Development Co., Limited and guaranteed by Yanzhou
Coal.
The outlook is stable.
RATINGS RATIONALE
"The rating 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 strong performance in 2018, underpinned
by around 9% year-on-year increase in the average
selling price, and a 17.7% year-on-year
increase in its saleable coal volume to 113.9 million tons.
Moody's expects average domestic coal selling prices for the company will
decline by around 10% in 2019 from the levels seen in 2018,
due to slowing growth in domestic coal demand in China. Nevertheless,
the Chinese government's measures to regulate the supply side should prevent
a deep and prolonged decline in domestic prices.
Moreover, Moody's expects the company's production volume
will increase by 6% in 2019, bringing its total saleable
coal volume to 120 million tons, mainly due to production increases
at its Ordos and Haosheng mines.
Accordingly, Yanzhou Coal's adjusted debt/EBITDA and EBIT/interest
should remain around 3.6x and 3.8x through 2019 compared
with 3.4x and 4.1x in 2018. Such levels support the
standalone credit profile of its Ba2 corporate family rating.
"The company's standalone credit profile is also supported by its
diversified coal mining assets and related infrastructure, its good-quality
coal in Australia, and its low-cost mining operations in
Shandong Province," says Yuting Liu, a Moody's Assistant
Vice President and Analyst, and also the Local Market Analyst for
Yanzhou Coal.
These credit strengths are partly offset by (1) its moderately high debt
leverage following years of expansion and acquisitions; and (2) execution
and financial risks related to its investments in the financial sector.
Yanzhou Coal's Ba2 corporate family rating incorporates a two-notch
uplift, reflecting Moody's expectation of extraordinary financial
support from the Shandong Provincial Government in times of stress,
through Yanzhou Coal's parent, Yankuang Group Corporation Limited.
Moody's expectation of government support reflects (1) Yankuang Group's
100% ownership by the Shandong Provincial Government; (2)
Yanzhou Coal's dominant position and strategic importance as Yankuang'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 Shandong Province in terms of economic contributions
and employment; (4) Yankuang Group's 51.81% direct
and indirect stake in Yanzhou Coal as of 31 December 2018, 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.
However, these factors are counterbalanced by the primarily commercial
nature of Yanzhou Coal's operations, resulting in a lower likelihood
of support from the government than for entities with significant public
policy mandates.
The stable outlook reflects Moody's expectation that (1) there will be
no drastic fall in coal prices in China, (2) the company will be
prudent in acquiring coal assets and with its investments in non-coal
businesses, and (3) the company will maintain its strong balance
sheet cash balances.
Yanzhou Coal's ratings could be upgraded if its credit metrics further
improve, and absent any adverse changes in the parental support.
Credit metrics indicative of upward rating pressure include adjusted debt/EBITDA
below 3.0x and EBIT/interest above 4.0x-4.5x
on a sustained basis.
On the other hand, Yanzhou Coal's ratings would be downgraded in
case of a material deterioration in its business or financial profile.
Credit metrics indicative of downward rating pressure include adjusted
debt/EBITDA above 5.0x and/or EBIT/interest below 3.0x.
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 in the parent's credit quality, or reduced
linkages with the Shandong Provincial Government.
The principal methodology used in these ratings was Mining published in
September 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 2018, it was 51.81%-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 2018, 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 Yuting Liu, +86
(106) 319-6530.
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
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
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
Peter Choy
Senior Vice President
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