CITIC Group Corporation -- Moody's: CITIC Pacific's rating unchanged following tap bond issuance
The tap bond offering has the same terms and conditions as the existing notes and, as with the existing notes, proceeds will be used primarily for the refinancing purpose.
"The Ba1 rating is supported by the company's diversified business portfolio and its stable operating performance in Hong Kong, " says Ivan Chung, a Moody's Vice President and the International Lead Analyst for CITIC Pacific.
The rating also takes into account the expected high support from its parent, the CITIC Group Corporation (Baa2 stable), based on a strong track record of timely support. This support provides a two-notch uplift from CITIC Pacific's standalone Ba3 rating.
In addition, the rating considers CITIC Pacific's adequate liquidity position in relation to its short-term debt. Excluding the proceeds from the issuance, it has HKD35.6 billion in cash on hand, and available committed banking facilities worth HKD15.5 billion as at end June 2012. In contrast, it has about HKD32 billion of debt maturing in 2012 and 2013.
Nonetheless, the proposed drawdown will further improve the company's near-term liquidity profile.
The negative outlook reflects the company's weak operating performance and its high financial leverage relative to its rating level.
"The commissioning of the first production line in CITIC Pacific'sSino iron ore project in Australia is a positive development. However, Moody's expects that it will not contribute meaningfully to the company's profits or cash flows in the near future," says Kai Hu, a Moody's Vice President and Local Market Analyst for CITIC Pacific.
Moody's will continue to monitor the progress of the company's iron ore project, the operating performance of its core businesses, and any initiatives that the company or parent decides to implement to maintain a credit profile that is appropriate for its current rating.
CITIC Pacific Limited's ratings were assigned by evaluating factors that Moody's considers relevant to the credit profile of the issuer, such as the company's (i) business risk and competitive position compared with others within the industry; (ii) capital structure and financial risk; (iii) projected performance over the near to intermediate term; and (iv) management's track record and tolerance for risk. Moody's compared these attributes against other issuers both within and outside CITIC Pacific Limited's core industry and believes CITIC Pacific Limited's ratings are comparable to those of other issuers with similar credit risk.
Other factors used in this rating are described in Analytical Considerations in Assessing Conglomerates published in September 2007.
CITIC Pacific Ltd, listed in Hong Kong, is a conglomerate that is 58% owned by CITIC Group Corporation. It was one of the first Chinese companies to list and invest abroad. Its major businesses include special steel manufacturing, iron ore mining and property development in Mainland China. It is also engaged in other businesses such as energy, tunnels, telecommunications, distribution and property development and investment in Hong Kong.
CITIC Group Corporation, headquartered in Beijing, is a conglomerate investment company wholly owned by the State Council of the Chinese government. As of end-2011, it had total consolidated assets of RMB3.3 trillion.
The local market analyst for this rating is Kai Hu, +86 (10) 6319-6560.
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