HONG KONG, 29 June 2021. Pengyuan International has assigned its first-time global scale long-term issuer credit rating (LTICR) of ‘A-’ to China Minmetals Corporation (Minmetals). The outlook is stable.
Minmetals is China’s largest metals and mining company as well as the largest metallurgical construction and engineering company. Minmetals’ issuer credit rating is based on a ‘bb’ standalone credit profile, and five notches upward adjustment from external support assessment. There is compelling evidence that the government has strong willingness to support the Company in the event of financial distress.
Minmetals’ rating is supported by its strategical importance to the central government in regard to safeguarding China’s base metals supply. The stable outlook reflects our expectation that the linkage between the Company and the central government will stay strong.

Key Rating Drivers
Credit Strengths
Strong support from the central government. Minmetals is wholly owned and ultimately controlled by the central State-owned Assets Supervision and Administration Commission (SASAC). The Company is strategically important as it acts as a key platform through which Chinese government acquires overseas mining resources and safeguards the nation’s base metals supply. The central government has paved the way of horizontal and vertical consolidations and acquisitions for the Company, and provided capital injection and subsidies over the past few years. We expect the Company will receive support from the government should it run into financial distress. 
Large operating scale with diversified business. Minmetals became a conglomerate specialising in integrated mining and metallurgical engineering and construction (E&C) through strategically combination of two former central SASAC-owned companies. In 2020, the Company reported RMB701.6 billion revenue and ranked 92th among the Fortune Global 500 companies. The business of the Company is well diversified spanning from metals and mining, metallurgical engineering and construction, trade and logistics to real estate and others. We believe that high business diversification helps the Company to reduce its business risks by mitigating its cyclical cash flow from volatile metals and mining business. 
On the trend of deleveraging. Despite of still high financial leverage, the Company has been reducing its leverage. Thanks to quite effective deleveraging process, the Company has reduced RMB14.28 billion and RMB 32.34 billion in interest-bearing reported debts in 2019 and 2020 respectively, reducing its gross debt to total capitalisation to 63.26% in 2020 from 70.56% in 2018. As a result, its debt to EBITDA ratio dropped to 5.59x in 2020 from 6.57x in 2019. We expect debt to EBITDA to remain 4.5x-4.8x and gross debt to total capitalisation to remain 55%-60% during 2021 to 2023 considering moderate CAPEX and improving cash flow in the next few years.
Credit Weaknesses
Weak profitability. The Company has a low EBITDA margin ranging from 7%-9.5% during 2018-2020. We expect the EBITDA margin to improve slightly in 2021 given higher prices of base metals but the profitability is expected to follow a decreasing trend after 2021 once metal price momentum eases thereafter.
High operating risks for overseas projects. The Company has acquired multiple overseas mines and operates in overseas E&C projects, which are subject to uncertainties of the global politics, economy and local community culture. Thus, the operation of overseas projects may face challenges if overseas uncertainties rise.

RATING OUTLOOK
The stable outlook reflects our views that the Minmetals will be able to maintain its current operations and that the China’s sovereign credit profile will remain stable.
We would consider a rating downgrade if 1) we downgrade our sovereign credit rating of China; 2) substantial evidence shows that the central government’s willingness to support the Company weakens in the event of distress; and 3) significant deterioration of the Company’s credit profile due to some company specific or industry-specific conditions, including non-ferrous metals prices, overseas projects risk and the Company’s leverage profile, are worse than expected on a prolonged basis.
We would consider a rating upgrade if we upgrade our sovereign credit rating of China, given that there is no material change in the central government’s willingness to support.
Note: ratings mentioned above are unsolicited.

ANALYSTS CONTACT
Primary Analyst
Winnie Guo
+852 3615 8344
winnie.guo@pyrating.com
Secondary Analyst
Leon Li
+86 755 2348 3867
leon.li@pyrating.com
Committee Chair
Ke Chen, PhD
+852 3615 8316
ke.chen@pyrating.com
MEDIA ENQUIRIES
Charley Lui
+852 3615 8296
charley.lui@pyrating.com
RATING SERVICES ENQUIRIES
Allen Wei
+852 3615 8324
allen.wei@pyrating.com
Date of Relevant Rating Committee: 11 June 2021
Additional information is available on www.pyrating.com

Related Criteria
Corporate Financial Adjustments and Ratio Definitions (7 May 2018)
General Corporate Rating Criteria (15 March 2018)
Government-Related Entities Rating Criteria (31 August 2018)

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