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Rating Action:

Moody's upgrades Yanzhou Coal's CFR to Ba2 from Ba3; outlook stable

 The document has been translated in other languages

23 May 2019

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.

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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

No Related Data.
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