CSPI Ratings Affirms and Withdraws ‘A’ Rating on China Baowu Steel Group Corporation Limited


09 Apr 2024

    HONG KONG, 9 April 2024. CSPI Ratings has affirmed China Baowu Steel Group Corporation Limited’s (Baowu) global scale long-term issuer credit rating (LTICR) of ‘A’. The rating is concurrently withdrawn for business reasons.

    Baowu’s issuer credit rating is derived from a four-notch uplift from its ‘bbb-’ stand-alone credit profile (SACP), reflecting our view that Baowu is significantly important to the Chinese central government as it is designated to be a consolidator in China’s steel industry. Baowu’s SACP is supported by its expanding operating scale and leading market position, despite the current downturn in the steel industry.

    KEY RATING RATIONALES

    Credit Strengths

    Global leader in the steel industry.  Baowu remains the largest steel-producing company worldwide, with annual output of crude steel of approximately 132 million tonnes after consolidating Xinyu Iron & Steel Group Co., Ltd. (新余钢铁集团有限公司) and Sinosteel Group Co., Ltd. (中钢集团有限公司). We expect Baowu’s operating scale to expand further through domestic acquisitions as the Chinese government is determined to increase concentration in the steel industry and improve SOE’s competitiveness globally.

    Track record of government support. Baowu is wholly owned by China's State-owned Assets Supervision and Administration Commission of the State Council (China’s SASAC). Since its establishment, Baowu has received substantial support from SASAC, positioning it as a designated consolidator in China's steel industry. In 2022, Baowu was designated as a state-owned capital investment company, aligning with the national strategy to strengthen industrial competitiveness and upgrade the steel-producing sector's industrial structure in China. As a result, we expect the central government's support for Baowu to remain robust.

    Improving diversification and competitiveness. Owing to Baowu’s nationwide mergers and consolidation over the past years, the company’s product structure is increasingly diversified. Additionally, Baowu holds dominant market shares in high-end products, such as silicon steel, high-end auto-sheet, and stainless steel. This leading position in high-end products positions Baowu favorably to maintain profitability levels above the industry average. We believe such advantage will enable Baowu to withstand the current weak steel demand resulting from the real estate downturn.

    Credit Weaknesses

    Business concentration risk. In spite of a diversified product portfolio, Baowu derives most of its revenue from the steel industry. As a result, the company’s profitability has a high correlation to the cyclicality risk of the steel industry.

    Risks associated with acquisitions. Baowu has been active in mergers and acquisitions in recent years. While we see opportunities and benefits, mergers and acquisitions increase operating risk, and the synergies of these mergers and acquisitions may not be as significant as the company expects.

    Note: ratings mentioned above are unsolicited.

    ANALYSTS CONTACT

    MEDIA CONTACT

    OTHER ENQUIRIES

    Primary Analyst
    Jameson Zuo

    +852 3615 8341

    jameson.zuo@cspi-ratings.com

    Secondary Analyst

    Winnie Guo

    +852 3615 8344

    winnie.guo@cspi.ratings.com

    Committee Chair

    Larissa Wu, PhD

    +852 3615 8317

    larissa.wu@cspi-ratings.com

    media@cspi-ratings.com

    contact@cspi-ratings.com

    Date of Relevant Rating Committee: 22 March 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 August 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.