Coal news and updates

Fitch Ratings-Shanghai-15 March 2021: The risk of a prolonged coal price decline in China has been lowered due to the government's effective price control via various tools, Fitch Ratings says in a new report. This supports the profitability of Chinese coal mining state-owned enterprises' (SOEs) core mining operations to some extent. However, there is a divergence among coal SOEs' credit profiles, with some entities still highly vulnerable to price downside risk and liquidity shocks.

 

There is a wide divergence of cost positions among provincial coal SOEs. We focus on unit operating cash flow generation as a measure of profitability. Most companies' expansion into new business segments beyond coal mining has not been credit accretive; coal-chemicals, the largest non-mining segment, suffered a sharp downturn in 2020.

 

Short-term debt of the 12 coal SOEs rose from 40% in 2012 to the peak of 56% in 2016 and remained around 50% afterwards. SOEs that have a large bond-maturity wall in the short-term and pay a higher cost of funding generally have less financing flexibility. Some companies have increased financing through banker's acceptances, reflecting tight liquidity. We have also seen increasing amount of debt borrowed at the holding-company (holdco) level, which may create structural subordination risk, as holdcos usually do not have full access to subsidiary-level cash flows.

 

Government support remains an important factor underpinning provincial coal SOEs' credit worthiness. The strategic importance of the coal industry and of the SOEs varies from province to province. Local government support is likely more forthcoming if a coal SOE's liquidity stress is only temporary, while its core operations remain competitive and its capital structure is still sustainable.

 

The report, "Chinese Provincial Coal Mining SOEs: A Peer Comparison of Key Operating and Financial Performance", is available on www.fitchratings.com or by clicking the link above.

 

Source : https://www.fitchratings.com/research/corporate-finance