Dagong Global Credit Rating (Hong Kong) Co., Ltd. (“Dagong HK”), an international credit rating company, today assigns its ‘BB’ global scale long-term issuer credit rating to Qinghai Provincial Investment Group (“QPIG”). The outlook is stable. Dagong HK also assigns ‘BB’ global scale issuance credit rating to QPIG’s proposed USD-denominated senior unsecured notes. The company will use the net proceeds to refinance existing debt and for general corporate purposes. The notes will constitute direct, unconditional, unsubordinated and unsecured obligations of the issuer and shall at all times rank pari passu and without any preference among themselves. The senior unsecured notes rating will be subject to our review on QPIG’s final offering documents.
The issuer rating reflects our expectations that the company’s market position will remain solid and intact over the next 12 months, but the aluminum industry will continue to struggle with the weak pricing environment. We also believe Qinghai provincial government to have a strong willingness to provide ongoing and extraordinary supports to the company.
QPIG is a small and medium-sized primary aluminum manufacturer in China, with the primary aluminum production capacity of 950,000 tons per annum at the end of 2016. The company has about 44-47% market share in Qinghai province and only around 2.5% market share in China by production volume. We expect QPIG to further expand its business model vertically on upstream electricity supply and downstream aluminum processing in the next two to three years to improve the profitability and lower the aluminum production cost.
QPIG is unlikely to reduce its very high financial leverage over the next two years, in our view. The company has ongoing and sizeable infrastructure and capital investment projects, which amounted to RMB4.6 billion and RMB3.0 billion in 2017 and 2018 respectively, and we expect these large capital outlays to be financed by debt and government funding. We also evaluate QPIG to have less than adequate liquidity position over the next 12 months. However, given the company’s SOE status, we believe that the company is able to maintain its bank facilities with the state-owned banks and to refinance its maturing debt in 2017.
The company is the largest state-owned enterprise (SOE) in Qinghai province by total assets and the second largest SOE by total revenues. It is also the largest job provider in Qinghai with about 16,000 staff being employed. QPIG had received about RMB3.2 billion government subsidies in 2011-2015 from Qinghai provincial government in form of asset transfers and capital injections, as well as price-stability fund, tax refunds, and grants.
In addition, the issuance rating of ‘BB’ on the proposed USD-denominated senior unsecured notes reflects our view that the company’s structural subordination risk can be mitigated by its substantial operating assets sitting at the parent level and the downstream loans that the parent entity provided to the subsidiaries.
The issuer rating reflects our expectations that the company’s market position will remain solid and intact over the next 12 months, but the aluminum industry will continue to struggle with the weak pricing environment. We also believe Qinghai provincial government to have a strong willingness to provide ongoing and extraordinary supports to the company.
QPIG is a small and medium-sized primary aluminum manufacturer in China, with the primary aluminum production capacity of 950,000 tons per annum at the end of 2016. The company has about 44-47% market share in Qinghai province and only around 2.5% market share in China by production volume. We expect QPIG to further expand its business model vertically on upstream electricity supply and downstream aluminum processing in the next two to three years to improve the profitability and lower the aluminum production cost.
QPIG is unlikely to reduce its very high financial leverage over the next two years, in our view. The company has ongoing and sizeable infrastructure and capital investment projects, which amounted to RMB4.6 billion and RMB3.0 billion in 2017 and 2018 respectively, and we expect these large capital outlays to be financed by debt and government funding. We also evaluate QPIG to have less than adequate liquidity position over the next 12 months. However, given the company’s SOE status, we believe that the company is able to maintain its bank facilities with the state-owned banks and to refinance its maturing debt in 2017.
The company is the largest state-owned enterprise (SOE) in Qinghai province by total assets and the second largest SOE by total revenues. It is also the largest job provider in Qinghai with about 16,000 staff being employed. QPIG had received about RMB3.2 billion government subsidies in 2011-2015 from Qinghai provincial government in form of asset transfers and capital injections, as well as price-stability fund, tax refunds, and grants.
In addition, the issuance rating of ‘BB’ on the proposed USD-denominated senior unsecured notes reflects our view that the company’s structural subordination risk can be mitigated by its substantial operating assets sitting at the parent level and the downstream loans that the parent entity provided to the subsidiaries.
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