S&P downgrades Yanzhou Coal

Standard & Poor’s said it lowered the long-term corporate credit rating on Yanzhou Coal Mining Co. Ltd. to BB from BB+.

The outlook is stable.

S&P also said it lowered the long-term issue rating on the company’s guaranteed senior unsecured notes to BB from BB+.

The agency also said it lowered the Greater China regional scale rating on Yanzhou and the notes to cnBBB- from cnBBB.

The downgrade reflects an expectation that the company’s cash flow leverage will deteriorate over the next 12- to 18-months due to low coal prices, S&P said.

Given the challenging industry conditions and the company’s high capital spending, the company’s financial risk profile was revised to “highly leveraged” from “aggressive,” the agency said.

The average coal price also is expected to drop another 5% to 10% in 2015 and remain low over the next 12- to 18-months because of weaker demand due to the economic slowdown, coal oversupply and reduced on-grid wholesale prices for thermal electricity, S&P said.

But, various factors should temper the price declines, such as the seasonality of coal price movements, recent reform of resource taxes and removal of the local government’s miscellaneous charges, the agency said.

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