Our rating does not factor a proposal by Aluminum Corp. of China Ltd. (Chalco;
foreign currency BBB/Negative/--; cnA-/--) to acquire a controlling stake in
Winsway. In our view, if the transaction materializes, it could help Winsway
to access additional railway capacity and avoid a potential inventory
build-up. Moreover, Chalco's ownership may improve Winsway's access to capital
markets. On April 23, 2012, Winsway announced that its major shareholder and
chairman and CEO, Mr. Wang Xingchun, entered into the share sale and purchase
agreement with Chalco to purchase 29.9% of Winsway's stake.
We have revised our base-case scenario for Winsway to suggest that the
company's earnings could break even in the second half of 2012. Winsway's
EBITDA margin could improve but will stay at less than 5% in 2012, compared
with 0.9% in the first half of the year. The ratio of total debt to EBITDA
could remain weak at more than 15x.
Winsway's liquidity is "adequate", as defined in our criteria. We expect the
company's sources of liquidity to cover its uses by more than 1.2x in 2012.
Our liquidity assessment is based on the following factors and assumptions:
-- Winsway's sources of liquidity include cash, pledged deposits, funds
from operations, and a US$20 million undrawn facility for GCC's working
-- As of June 30, 2012, Winsway has cash and cash equivalents of about
HK$3.87 billion, of which HK$2.34 billion is un-restricted. The company has
short-term debt of about HK$2.19 billion.
-- Winsway's uses of liquidity include cash consideration for the
acquisition, planned capital expenditure, working capital needs, debt
repayments (we expect the company to reach an agreement with Minsheng Bank to
delay the amortization of a US$350 million term loan), and dividend
-- We expect net sources to remain positive even if EBITDA declines by
Winsway has about HK$4.90 billion in undrawn uncommitted bank facilities as of
June 30, 2012. The company's bank loans do not have financial covenants.
The negative rating outlook reflects our view that a strong recovery in coking
coal demand and prices is uncertain. Winsway's credit protection measures are
therefore likely to remain weak for the rating over the next 12 months
We may lower the rating if: (1) Winsway's financial performance does not
improve in the next few quarters, such that its ratio of total debt to EBITDA
stays above 6.0x on a consistent basis; or (2) GCC's business and financial
performance deteriorates further. The rating could also come under pressure if
Winsway's liquidity weakens further due to potential bond redemption.
Nevertheless, we believe that the risk of this is low.
We could revise the outlook to stable if: (1) GCC ramps up its coal
production, significantly lowers its average production costs, and returns to
profit; and (2) Winsway improves its profitability and financial strength,
such that its ratio of total debt to EBITDA returns to below 5x on a
Related Criteria And Research
-- Winsway Coking Coal Holdings Ltd. 'B+' Rating Placed On CreditWatch
Negative On Deteriorating Profitability, July 18, 2012
-- Winsway Coking Coal Holdings Ltd.'s Potential Ownership Change Has No
Immediate Rating Implications, April 25, 2012
-- Winsway Coking Coal Holdings Ltd. Downgraded To 'B+' On Heightened
Business Risk; Outlook Stable, Feb. 28, 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
Ratings Affirmed; CreditWatch/Outlook Action
Winsway Coking Coal Holdings Ltd.
Corporate Credit Rating B+/Negative/-- B+/Watch Neg/--
Senior Unsecured B+ B+/Watch Neg
Downgraded; CreditWatch/Outlook Action
Winsway Coking Coal Holdings Ltd.
Corporate Credit Rating
Greater China Regional Scale cnBB-/-- cnBB/Watch Neg/--
Senior Unsecured cnBB- cnBB/Watch Neg