(The following was released by the rating agency)
April 27 (Fitch) Fitch Ratings has assigned China-based
Yanzhou Coal Mining Company Limited (Yancoal) a Long-Term
Foreign-Currency Issuer Default Rating (IDR) of 'BBB-' with a
Stable Outlook. Simultaneously, Fitch has assigned Yancoal's
proposed senior unsecured notes an expected rating of
'BBB-(exp)'. The final instrument rating is contingent upon the
receipt of final documents conforming to information already
Yancoal's ratings reflect its position as one of the largest
coal mining companies in China, with 10 operational coal mines.
Its operating scale and reserve base and life statistics are in
line with peers rated in the high 'BB' and low 'BBB' categories.
Its geographically diversified production base reduces the risk
of business interruption, such as due to poor weather. Proximity
of its mines to end-users also reduces transportation costs.
Yancoal's Australian subsidiary, Yancoal Australia Limited,
is in the process of merging with Gloucester Coal Limited
(Gloucester), a listed coal mining company in Australia.
Post-merger, Yancoal Australia Limited would become the largest
listed pure-play coal mining enterprise in Australia with nine
operational coal mines (up from six). The transaction is subject
to certain approvals and Yancoal expects the deal to be closed
As a single commodity mining company, Yancoal's credit
profile is tempered by potential coal price volatility. This
risk is, however, mitigated by the Chinese government's 12th
5-year plan to consolidate the coal mining industry and
Yancoal's efforts to diversify its cash flow sources.
Fitch views Yancoal's links with its 53% majority
shareholder, Yankuang Group Corporation Limited (Yankuang, an
entity owned by Shandong State-owned Assets Supervision and
Administration Commission), as only moderate to weak. Despite
Yankuang's controlling stake, Yancoal's sizeable number of
international minority investors are a counteract to Yankuang's
Yancoal's credit metrics are strong at the current rating
level, with funds from operations (FFO) gross interest coverage
of 17.9x and FFO-adjusted net leverage of 1.1x for 2011.
However, Fitch expects these metrics to weaken both on the
company's planned capex for 2012 and 2013 and on the proposed
merger with Gloucester, for which Yancoal is responsible in
funding a special dividend and capital return.
Negative rating action may result from FFO-adjusted net
leverage rising above 2.5x on a sustained basis or from any
strategic decision from Yankuang Group leading to an impairment
of Yancoal's credit risk profile. Positive rating guidelines
include FFO-adjusted net leverage improving to 1x or below on a
The proposed senior unsecured debt instrument is rated at
the same level as Yancoal's IDR, reflecting the adequacy of
unencumbered assets and the fact that secured debt accounts for
less than 2x of 2011 EBITDA. The proceeds from the proposed
notes are to be used for refinancing and funding development
costs of new projects.