Fitch revises Yanzhou Coal to negative

Fitch Ratings said it revised the outlook on Yanzhou Coal Mining Co. Ltd.’s long-term foreign-currency issuer default rating to stable from negative and affirmed the rating at B.

The agency also affirmed the B rating on the $1 billion dual-tranche notes issued by Yancoal International Resources Development Co., Ltd. and guaranteed by Yanzhou Coal, with a recovery rating of RR4.

Fitch said it believes the significant improvement in the operating environment from higher coal prices has reduced the overall risks for Yanzhou, resulting in the revision of the outlook. The B rating reflects stronger operation cash flow as a result of coal prices rebounding in the second half of 2016, as well as an improvement in its production costs.

“These positive factors are despite continuing weaknesses of its debt structure and liquidity arising largely from its high reliance on short-term debt at end-2016. We expect capex to remain high, with the company's construction of coal chemicals projects and coal mining-related investments limiting its ability to improve its credit metrics significantly,” Fitch said in a news release.

“Furthermore, the company has started investing in certain financial services operations.”

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