TEXT-S&P cuts Winsway to 'B' and places on watch neg
(The following statement was released by the rating agency)
Jan 21 -
-- Winsway has given a profit warning ahead of its financial results for 2012 that suggests its financial performance has deteriorated significantly from our base-case scenario.
-- We are uncertain if the China-based coking coal supply and logistics provider can turn around its performance in 2013.
-- We are lowering our long-term corporate credit rating on Winsway and the issue rating on its outstanding notes to 'B' from 'B+'. We are also lowering our Greater China regional scale ratings on Winsway and on the notes to 'cnB+' from 'cnBB-'.
-- We are placing all the ratings on CreditWatch with negative implications.
On Jan. 21, 2013, Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Winsway Coking Coal Holdings Ltd. to 'B' from 'B+'. At the same time, we lowered the rating on the company's senior unsecured notes to 'B' from 'B+'. We also lowered our long-term Greater China regional scale rating on Winsway and on the notes to 'cnB+' from 'cnBB-'. In addition, we placed all the ratings on CreditWatch with negative implications. Winsway is a China-based coking coal supply and logistics provider.
We downgraded Winsway because we are unclear if the company can turn around its financial performance in 2013 following an expected loss in 2012. A recent profit warning from Winsway suggests that its financial results for 2012 could be significantly below our previous base-case expectations.
Based on our preliminary analysis, Winsway's cash flow protection will likely remain weak in 2013, due to depressed coal prices, high inventory, and the uncertain ramp-up of a new coal mine in Canada. Standard & Poor's expects China's GDP to grow to about 8% in 2013 with a modest increase in steel demand, limiting the upside to coal prices. Sharp declines in coking coal prices last year led Winsway's customers to renegotiate supply contracts, reducing profit margins.
In our opinion, the company's business model of back-to-back contracts with customers has not protected Winsway from its exposure to coal-price volatilities.
We are also unclear when transport links and production at Winsway's Canada operations will improve. Canada's Westshore Terminals port closed late last year, and this affected the already-weak profitability of Grand Cache Corp. (GCC), a coal mine that Winsway recently acquired.
In the absence of asset sales, Winsway's management of working capital and liquidity will be critical for the company to weather the current difficulties.
We aim to resolve the CreditWatch placement in the coming weeks. Our assessment of the rating depends on Winsway's liquidity position and the company's likely operating performance and cash flows in 2013. We could lower the rating by one notch if we believe Winsway's liquidity in the next 12 months will deteriorate and the company will not have sufficient cash sources to meet its obligations.
We could affirm the rating with a negative outlook if we believe Winsway's operating performance can improve, which depends on higher coal prices and an increase in GCC's production and shipments.
In resolving the CreditWatch, we will focus on: (1) how Winsway will preserve its cash and lower its cost position amid the current conditions; and (2) how reduced profit would affect the company's access to bank financing.
Related Criteria And Research
-- Winsway Coking Coal Holdings Ltd. 'B+' Rating Affirmed With Negative Outlook; Off Watch Negative, Sept. 3, 2012
-- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011
-- Key Credit Factors: Methodology And Assumptions On Risks In The Mining Industry, June 23, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Downgraded; CreditWatch/Outlook Action
Winsway Coking Coal Holdings Ltd.
Corporate Credit Rating B/Watch Neg/-- B+/Negative/--
Greater China Regional Scale cnB+/Watch Neg/-- cnBB-/--/--
Winsway Coking Coal Holdings Ltd.
Senior Unsecured B/Watch Neg B+
Senior Unsecured cnB+/Watch Neg cnBB-