NEWS - Moody's downgrades Minmetals on 'weak earnings state' in metals portfolio

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Vivian Teovivian.teo@fastmarkets.comJoint News Editor - Asia

Singapore 17/05/2016 - Moody's Investors Service has downgraded the issuer rating of China Minmetals Corp to Baa1 from A3, reflecting the weak state of earnings in the company’s metal and mining portfolio due to the decline in global base metal prices, the ratings agency said on Monday.

The downgrade also reflects worse credit metrics and the expectation of high, albeit improved, leverage, it added.

As base metal prices fell in 2015, the company reported major losses because of mainly non-cash asset impairment charges and a significant weakening in its credit metrics.

Despite the challenges, Moody's expects Minmetals' credit profile to improve in the next or or two years due to the ramp-up of production at its Las Bambas project and its forthcoming consolidation with China Metallurgical Group Corporation (MCC).

Once the project reaches its optimal  capacity in 2017-2018, it would contribute as much as a half of Minmetals' EBITDA while adding a limited amount of debt. The group should therefore be able to deleverage, Moody’s said.

In addition, the consolidation of MCC as a wholly owned subsidiary of Minmetals is expected to complete by the end of next month. This outcome will boost China Minmetals' size, diversity and credit metrics, it noted.
 
Minmetals also plans to control debt growth and raise a substantial amount of equity through its various subsidiaries in 2016, helping improve its capital structure.

"At the same time, we continue to see very high support from Chinese government to China Minmetals in times of need," Moody's said. 

This is evident in the company's strategic importance to China's metal resources security, its full ownership by the government and its solid track record of receiving government subsidies and equity injections, which amounted to 15 billion yuan ($2.3 billion) for 2008-2015.

Moody's assigned a negative outlook to Minmetals' ratings to reflect the challenging operating environment and the uncertainties related to the company's deleveraging plan.

It also reflects the negative rating outlook of the Chinese government and the potential for weaker-than-expected support from it over time, given the reform process in China and increasing evidence that both the central and local governments will gradually expect state-owned enterprises to continue operating in commercial areas without state support, it said.


(Editing by Mark Shaw)



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