Fitch cuts Yancoal, notes to B

Fitch Ratings said it downgraded Yanzhou Coal Mining Co. Ltd.’s (Yancoal) long-term foreign-currency issuer default rating to B from BB-.

The outlook remains negative.

The agency also downgraded the rating on the $1 billion dual-tranche notes issued by Yancoal International Resources Development Co., Ltd., and guaranteed by Yancoal, to B from BB- with a recovery rating of RR4; and the rating on the dollar-denominated senior perpetual capital securities issued by Yancoal International Trading Co., Ltd., and guaranteed by Yancoal, to B from B+ with a recovery rating of RR4.

Fitch said the downgrade of Yancoal's issuer default rating and maintenance of a negative outlook reflect weakening in short-term liquidity, sustained high leverage (FFO-adjusted net leverage of 10 times at end-2015) arising from challenging coal-mining industry conditions and higher-than-expected capex.

Yancoal's capital expenditure is likely to remain elevated in the next three to four years, which together with the agency’s expectations of sustained weak thermal coal prices, will result in negative free cash flows and constrain the company's ability to improve its financial position meaningfully.

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