Pengyuan International Affirms China Minmetals Corporation at ‘A-’ Rating; Outlook Stable


14 Jul 2022

    HONG KONG, 14 July 2022. Pengyuan International has affirmed the global scale long-term issuer credit rating (LTICR) of ‘A-’ for China Minmetals Corporation (Minmetals) with a stable outlook.

    Minmetals is China’s largest conglomerate in the metals and mining industry as well as in the metallurgical construction and engineering industry. Minmetals’s issuer credit rating is based on a ‘bb+’ standalone credit profile, and a four-notch upward adjustment from the external support assessment. Given its high strategic importance to the central government regarding safeguarding China’s base metals supply, we believe that the central government has a strong willingness to support the Company in the event of financial distress.

    KEY RATING RATIONALES

    Credit Strengths

    Strong support from the central government. Wholly owned and ultimately controlled by the central State-owned Assets Supervision and Administration Commission (SASAC), Minmetals has been acting as a key platform through which the Chinese government acquires overseas mining resources and safeguards the nation’s base metals supply. The central government appointed the Company’s key management and provided capital injections and subsidies over the past few years. We believe that the central SASAC has incentives to continuously support the Company given its strong linkage with and strategic importance to the central government.

    Large in scale and diversified in business. Minmetals is China’s largest integrated conglomerate with a well-diversified business mix spanning from metals and mining, metallurgical engineering and construction, trade and logistics to real estate, and others. In 2021, the Company reported RMB850 billion in revenue and ranked 65th among the Fortune Global 500 companies. The Company is also the world’s largest contractor and service provider in metallurgical engineering and construction, with over 60% and 90% global and domestic market share, respectively. We believe that high business diversification helps the Company to reduce its business risks by mitigating its cyclical cash flow from volatile metals and mining business.

    On the trend of deleveraging. Benefiting from the Minmetals’s effective deleveraging efforts, the Company has cut around RMB32 billion and RMB20 billion in interest-bearing reported debts in 2020 and 2021, respectively, reducing its gross debt to total capitalisation to 60.9% in 2021 from 70.6% in 2018. Driven by higher EBITDA in 2021, the Company’s debt to EBITDA ratio dropped to 3.6x in 2021 from 5.4x in 2020, and its EBITDA interest coverage increased to 3.9x in 2021 from 3.0x in 2020. We expect the Company to deleverage further during 2022-2024 given its robust cash flow generation and fairly disciplined capital expenditures. As such, we expect debt to EBITDA to remain at 2.6x-3.5x and gross debt to total capitalization to follow a decreasing trend in 2022-2024.

    Credit Weaknesses

    Weak profitability. The Company has a low EBITDA margin ranging from 7%-9.5% during 2018-2021. We expect that the Company may face pressures on profitability in the next 12-24 months due to the slowdown in commodity price momentum and the change in the business mix of the engineering construction segment.

    High operating risks for overseas projects. The Company has acquired multiple overseas mines and operates in overseas E&C projects, which are subject to the uncertainties of the global politics, economy and local community culture. Thus, the operation of overseas projects may face challenges if overseas uncertainties rise.

    RATING OUTLOOK

    The stable outlook reflects our views that the Minmetals will be able to maintain its current operations and that China’s sovereign credit profile will remain stable.

    We would consider a rating downgrade if 1) we downgrade our sovereign credit rating of China; 2) substantial evidence shows that the central government’s willingness to support the Company weakens in the event of distress; and 3) significant deterioration of the Company’s credit profile due to some company-specific or industry-specific conditions, including non-ferrous metals prices, overseas projects risk and the Company’s leverage profile, are worse than expected on a prolonged basis.

    We would consider a rating upgrade if we upgrade our sovereign credit rating of China, given that there is no material change in the central government’s willingness to support.

    Note: ratings mentioned above are unsolicited.

    ANALYSTS CONTACT

    MEDIA CONTACT

    OTHER ENQUIRIES

    Primary Analyst

    Winnie Guo

    +852 3615 8344

    winnie.guo@pyrating.com

    Secondary Analyst

    Leon Li

    +86 755 2348 3867

    leon.li@pyrating.com

    Committee Chair

    Ke Chen

    +852 3615 8316

    ke.chen@pyrating.com

    media@pyrating.com

    contact@pyrating.com

     Date of Relevant Rating Committee: 29 June 2022

    Additional information is available on www.pyrating.com

    Related Criteria

    General Corporate Rating Criteria (15 March 2018)

    Corporate Financial Adjustments and Ratio Definitions (7 May 2018)

    Government-Related Entities Rating Criteria (31 August 2018)

     

    DISCLAIMER

    Unsolicited ratings – non-participative – disclosed and results not affected

    Pengyuan Credit Rating (Hong Kong) Company Ltd (“Pengyuan International”, “Pengyuan”, “the Company”, “we”, “us”, “our”) publishes credit ratings and reports based on the established methodologies and in compliance with the rating process. For more information on policies, procedures, and methodologies, please refer to the Company’s website www.pyrating.com. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.

    All credit ratings and reports are subject to disclaimers and limitations. CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.

    CREDIT RATINGS ADDRESS ONLY CREDIT RISK. THE COMPANY DEFINES THE CREDIT RISK AS THE RISK THAT THE RATED ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS MUST NOT BE CONSIDERED AS FACTS OF A SPECIFIC DEFAULT PROBABILITY OR AS A PREDICTIVE MEASURE OF A DEFAULT PROBABILITY. Credit ratings constitute the Company’s forward-looking opinion of the credit rating committee and include predictions about future events which by definition cannot be validated as facts.

    For the purpose of the rating process, the Company obtains sufficient quality factual information from sources which are believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses during the rating process. The Company had access to the accounts and other relevant public documents of the rated entity or its related party. The Company has examined the quality of information used in the rating process in accordance with established process and it is satisfied with the quality of information used.

    Users of the Company’s credit ratings shall refer to the rating symbols and definitions published on the Company’s website. Credit ratings with the same rating symbol may not fully reflect all small differences in the degrees of risk, because credit ratings are relative measures of the credit risk.

    NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.

    The Company reserves the right to take any rating action for any reasons the Company deems sufficient at any time and in its sole discretion. The publication and maintenance of credit ratings are subject to availability of sufficient information.

    The Company does not receive compensation for its unsolicited credit ratings. The rated entity did not participate in the rating process. The unsolicited credit rating has been disclosed to the rated entity or to its related party and, following such disclosure, the credit rating result has not been amended before being issued.

    The Company reserves the right to disseminate its credit ratings and reports through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.

    The Company’s credit ratings and reports are not intended for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubts, please consult the relevant regulatory body or professional advisor and ensure compliance with applicable laws and regulations.

    In the event of any dispute arising out of or in relation to our credit ratings and reports, the Company shall have absolute discretion in all matters relating to resolving the dispute, including but not limited to the interpretation of disclaimers and policies.

    Copyright © 2022 by Pengyuan Credit Rating (Hong Kong) Company Ltd. All rights reserved.