Hong Kong, July 30, 2020 — Moody’s Investors Service has affirmed the Baa1 issuer rating of China Minmetals Corporation.
Moody’s has also affirmed the Baa1 senior unsecured rating on the bonds issued by China Minmetals Corporation, and the backed Baa1 senior unsecured rating on the bonds issued by Minmetals Bounteous Finance (BVI) Limited and guaranteed by China Minmetals Corporation.
The outlook on the ratings remains stable.
“The rating affirmation reflects our expectation that the company will maintain a stable credit profile, supported by its (1) diversified revenue and earnings from metals and mining as well as construction and engineering, and (2) steady debt level over the next 12–18 months,” says Chenyi Lu, a Moody’s Vice President and Senior Credit Officer.
China Minmetals’ Baa1 issuer rating incorporates its Baseline Credit Assessment (BCA) of ba3 and a five-notch uplift based on Moody’s expectation of a very high level of support from and a high level of dependence on the Government of China (A1 stable), in times of need.
This very high support assessment is underpinned by China Minmetals’: (1) strategic importance to China’s metal resources security, (2) full ownership by the government, (3) track record of receiving government support in the form of subsidies and equity injections, and (4) the Chinese government’s strong ability to provide support, as reflected in the A1 sovereign rating.
China Minmetals’ BCA of ba3 primarily reflects: (1) the company’s large and diversified metals and mining business portfolio, with leading market positions in China; (2) its strong market position and large operating scale in the Chinese engineering and construction (E&C) sector through its key subsidiary CMGC, and (3) its track record of deleveraging after the CMGC merger and improved discipline in debt management.
These strengths are partially offset by (1) the company’s exposure to volatile base metal prices and operations; (2) the operational and regulatory risks in its overseas mines; and (3) its relatively high leverage compared with rated peers.
Moody’s expects China Minmetals’ copper mines, Las Bambas and Kinsevere, will continue to face weak copper prices over the next 12-18 months. Therefore, Moody’s expects the company’s mining business and other businesses outside CMGC will generate an aggregate annual EBITDA of around RMB27-RMB28 billion in 2020 and 2021, compared with RMB29.5 billion in 2019. Such EBITDA decline will be partially mitigated by higher EBITDA contributions from its engineering and construction business under CMGC.
In addition, Moody’s expects China Minmetals will remain disciplined in its financial management to contain its debt growth. As a result, its adjusted debt/EBITDA should stay around 7.9x and 7.6x at the end of 2020 and 2021 respectively. Such levels of leverage support its BCA of ba3.
China Minmetals’ issuer rating also takes into account the following environmental, social and governance (ESG) considerations.
The mining industry has high exposure to environmental risks regarding mining and smelting pollution, the management of soil, water and waste, and natural and man-made disasters such as tailing dam failures and pit wall collapses. However, the company has a good track record of complying with relevant environmental regulations.
With respect to social risks, the company has a good track record on managing wages, providing health and safety measures for employees, and complying with a safe production environment. However, the company has encountered relationship issues with the local community in its Las Bambas copper mine in Peru, which resulted in temporary blockades of ores transportation out of the mines. In response, China Minmetals invested USD16 million in social investment programs at Las Bambas in 2019 to help improve its relationship with the local community.
In terms of governance risks, although China Minmetals is not a listed company and therefore there is less, the transparency of its financial policy and investments. Nevertheless, this is has improved thanks to its continuous participation in bond markets and other capital market activities. In addition, governance risks are mitigated by its status as a state-owned enterprise subject to the central government’s close supervision and monitoring, and the fact that some of its major subsidiaries are listed companies with comprehensive information disclosure.
The stable outlook reflects Moody’s expectations that over the next 12-18 months: (1) China Minmetals’ credit metrics will remain at levels appropriate for its ba3 BCA; and (2) the company’s important role in the country’s engineering & construction and mining & metals sectors, as well as the Chinese government’s ability to provide support, will remain intact — the latter of which is mirrored in the stable outlook on the sovereign’s rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody’s could upgrade China Minmetals ratings if there is a significant improvement in its BCA, with its adjusted debt/EBITDA remaining below 5.0x on a sustained basis.
A sovereign upgrade is unlikely to trigger a rating upgrade for China Minmetals if the company’s BCA does not improve, given that Moody’s assessment of government support for the company is already very high.
Moody’s could downgrade China Minmetals’ ratings if its BCA is lowered because of a material deterioration in its business or financial profile, without any material changes in the support assessment. Credit metrics indicative of a lower BCA include adjusted debt/EBITDA above 7.5x-8.0x on a sustained basis.
The rating could also be downgraded, without lowering its BCA, if Moody’s assesses that the government support for the company has weakened.
The principal methodologies used in rating China Minmetals Corporation were Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. The principal methodology used in rating Minmetals Bounteous Finance (BVI) Limited was Mining published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1089739. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
China Minmetals Corporation is a diversified company which has vertically integrated commodities operations with a diversified portfolio of metals and mineral products. Its metals and mining businesses includes exploration, mining, smelting, processing and trading of metals and minerals. It also has large scale engineering and construction businesses that operate under CMGC.
China Minmetals reported revenues of RMB600 billion and total assets of RMB930 billion in 2019.
The local market analyst for these ratings is Jin Wu, +86 (212) 057-4021 .
For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.
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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.
Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.
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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
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