Chalco’s rating is based on its standalone credit profile (SACP) of ‘bbb-’ and our assessment that its parent Aluminum Corporation of China (Chinalco) has an extremely strong willingness to provide support to Chalco in the event of financial distress. Chinalco is 100% owned by China’s State-owned Assets Supervision and Administration Commission (SASAC), and its credit profile is closely linked to the creditworthiness of China’s central government (AA/stable).
KEY RATING RATIONALES
Credit Strengths
Strong linkage to the government through its parent. Chalco is 29.95% owned by Chinalco, the wholly owned subsidiary of SASAC. Chinalco is of great strategic importance to the state as it has been consistently contributing to the development of China’s aerospace fields, and it is also an important platform for the Chinese government to acquire overseas mining resources and integrate the domestic non-ferrous metal industry. In addition, the Chinese government has provided substantial and consistent support to Chinalco through subsidies, tax rebates, and direct asset injections. Chalco is highly integrated with Chinalco as it is the key operating platform for Chinalco’s aluminum and alumina businesses. Therefore, we think Chalco will have strong support from the government through its parent company if the Company encounters financial difficulties.
Strengthened vertical integration in aluminum production. Chalco is the leading aluminum producer with the largest alumina and the second-largest aluminum production volume in the world. In 2023, the Company produced 16.67 million tonnes of alumina and 6.79 million tonnes of aluminium, accounting for 20% and 16% of alumina and aluminum production in China respectively. Chalco's operations span the entire aluminum industry value chain, from mineral resources exploration to aluminum production, as well as energy power and logistics. The company is self-sufficient in most of its raw materials. Benefiting from a highly integrated value chain in aluminum production, we believe the Company will continue to enhance efficiencies and strengthen its market position.
Continued to deleverage. Chalco’s leverage profile has improved significantly driven by strong cash flow generation through the aluminum industry’s upward cycle over the past two years. The total interest-bearing debt has decreased to RMB79.7 billion in 2023 from RMB88.7 billion in 2022 and RMB100.0 billion in 2021 despite a minor decline in EBITDA. As a result, the gross debt-to-capitalisation ratio continued to fall to 45.1% in 2023 from 50.8% in 2022 and 53.4% in 2021, and the debt-to-EBITDA ratio slightly decreased to 2.2x in 2023 from 2.4x in 2022 and 2.3x in 2021.
Credit Weaknesses
Relatively weak profitability. Chalco's profitability remained relatively weak compared to its peers, as evidenced by its EBITDA margin ranging between 8%-13% during 2017-2023, which was lower than the median EBITDA margin of its industry peers. We expect the Company's production costs to decrease due to a higher bauxite self-sufficiency rate and lower power costs.
High business concentration in aluminium. Chalco's business concentration in the aluminum industry is very high, with aluminum and alumina being the main contributors to its profits. Therefore, the Company faces the impact of the supply and demand cycle of the aluminum industry.
Note: ratings mentioned above are unsolicited.
ANALYSTS CONTACT | MEDIA CONTACT | OTHER ENQUIRIES |
Primary Analyst Winnie Guo +852 3615 8344 Secondary Analyst Jameson Zuo +852 3615 8341 Committee Chair Larissa Wu, PhD +852 3615 8317 | media@cspi-ratings.com | contact@cspi-ratings.com |
Date of Relevant Rating Committee: 29 April 2024
Additional information is available on www.cspi-ratings.com
Related Criteria
General Corporate Rating Criteria (15 March 2018)
Corporate Financial Adjustments and Ratio Definitions (7 May 2018)
Government-Related Entities Rating Criteria (31 Aug 2018)
DISCLAIMER
Unsolicited ratings – non-participative – disclosed and results not affected
CSPI Credit Ratings Company Limited (“CSPI Ratings”, “the Company”, “we”, “us”, “our”) publishes credit ratings and reports based on the established methodologies and in compliance with the rating process. For more information on policies, procedures, and methodologies, please refer to the Company’s website www.cspi-ratings.com. The Company reserves the right to amend, change, remove, publish any information on its website without prior notice and at its sole discretion.
All credit ratings and reports are subject to disclaimers and limitations. CREDIT RATINGS ARE NOT FINANCIAL OR INVESTMENT ADVICE AND MUST NOT BE CONSIDERED AS A RECOMMENDATION TO BUY, SELL OR HOLD ANY SECURITIES AND DO NOT ADDRESS/REFLECT MARKET VALUE OF ANY SECURITIES. USERS OF CREDIT RATINGS ARE EXPECTED TO BE TRAINED FOR INDEPENDENT ASSESSMENT OF INVESTMENT AND BUSINESS DECISIONS.
CREDIT RATINGS ADDRESS ONLY CREDIT RISK. THE COMPANY DEFINES THE CREDIT RISK AS THE RISK THAT THE RATED ENTITY MAY NOT MEET ITS CONTRACTUAL AND/OR FINANCIAL OBLIGATIONS AS THEY BECOME DUE. CREDIT RATINGS MUST NOT BE CONSIDERED AS FACTS OF A SPECIFIC DEFAULT PROBABILITY OR AS A PREDICTIVE MEASURE OF A DEFAULT PROBABILITY. Credit ratings constitute the Company’s forward-looking opinion of the credit rating committee and include predictions about future events which by definition cannot be validated as facts.
For the purpose of the rating process, the Company obtains sufficient quality factual information from sources which are believed by the Company to be reliable and accurate. The Company does not perform an audit and undertakes no duty of due diligence or third-party verification of any information it uses during the rating process. The Company had access to the accounts and other relevant public documents of the rated entity or its related party. The Company has examined the quality of information used in the rating process in accordance with established process and it is satisfied with the quality of information used.
Users of the Company’s credit ratings shall refer to the rating symbols and definitions published on the Company’s website. Credit ratings with the same rating symbol may not fully reflect all small differences in the degrees of risk, because credit ratings are relative measures of the credit risk.
NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS OR COMPLETENESS OF ANY INFORMATION GIVEN OR MADE BY THE COMPANY IN ANY FORM OR MANNER. In no event shall the Company, its directors, shareholders, employees, representatives be liable to any party for any damages, expenses, fees, or losses in connection with any use of the information published by the Company.
The Company reserves the right to take any rating action for any reasons the Company deems sufficient at any time and in its sole discretion. The publication and maintenance of credit ratings are subject to availability of sufficient information.
The Company does not receive compensation for its unsolicited credit ratings. The rated entity did not participate in the rating process. The unsolicited credit rating has been disclosed to the rated entity or to its related party and, following such disclosure, the credit rating result has not been amended before being issued.
The Company reserves the right to disseminate its credit ratings and reports through its website, the Company’s social media pages and authorised third parties. No content published by the Company may be modified, reproduced, transferred, distributed or reverse engineered in any form by any means without the prior written consent of the Company.
The Company’s credit ratings and reports are not intended for distribution to, or use by, any person in a jurisdiction where such usage would infringe the law. If in doubts, please consult the relevant regulatory body or professional advisor and ensure compliance with applicable laws and regulations.
In the event of any dispute arising out of or in relation to our credit ratings and reports, the Company shall have absolute discretion in all matters relating to resolving the dispute, including but not limited to the interpretation of disclaimers and policies.
Copyright © 2024 by CSPI Credit Ratings Company Limited All rights reserved.