S&P Global Ratings said Wednesday it was keeping its ratings on Chinese aluminum group China Hongqiao Group on credit watch with negative implications, despite some progress to resolve issues that have delayed the publication of Hongqiao's 2016 annual report.
S&P placed Hongqiao on credit watch on March 24, after the company announced a potential delay in the publication of its 2016 annual report due to the suspension of auditing work. S&P attributed the move to the company's "increasing management and governance risks, and possible strain on liquidity."
"We aim to resolve the credit watch as soon as we have more clarity regarding the timing and content of Hongqiao's audited 2016 annual report and the validity of allegations in short-seller reports on the China-based aluminum manufacturer," S&P said.
S&P said its ratings were unaffected by Hongqiao's repayment of $400 million senior unsecured notes and the extension of a waiver in relation to its syndicated loan.
"China Hongqiao's full and on-time repayment of the $400 million senior unsecured notes due on June 26, 2017, has lessened concern on the company's short-term liquidity. Moreover, the company signed a strategic cooperation agreement with CITIC Bank, in which the latter agreed to grant credit facilities of no more than Yuan 20 billion ($2.9 billion) to the company in the next two years and to provide comprehensive financial services to the company. This strategic cooperation agreement, though non-binding, reflects some degree of access to the credit market," S&P said.
Trading in Hongqiao's shares have been suspended on the Stock Exchange of Hong Kong since March 22.
S&P lowered its long-term corporate credit rating on Hongqiao to B+ from BB-, and lowered the issuer ratings on Hongqiao's outstanding senior unsecured notes to B+ from BB-.
In addition, S&P lowered its long-term Greater China regional scale ratings on Hongqiao and the notes to cnBB- from cnBB+. S&P also placed all the ratings on CreditWatch with negative implications.
AUDITED ANNUAL REPORT DUE AUGUST 31
S&P noted on Wednesday that Hongqiao's creditors have granted the company an extension of a waiver in relation to its $700 million syndicated loan. The waiver has been extended until the end of August 2017, from end of June. S&P said this means Hongqiao is obligated to provide its audited 2016 annual report by the new deadline or it will be in technical default of the terms of its loan.
TIMELINE OF RECENT EVENTS
March, 21, 2017: Hongqiao announced that it may delay the release of its 2016 annual results because it needed more time to address issues raised by its auditor.
March 22, 2017: Trading in Hongqiao's shares was suspended.
April 18, 2017: Hongqiao announced that it obtained an extension from a majority of the creditors of the $700 million syndicated loan on the publication of its 2016 financial results. The waiver is valid until end June 2017.
April 28, 2017: Hongqiao announced that Ernst & Young resigned as its auditor with effect from April 27, 2017. Baker Tilly Hong Kong Ltd. was appointed as its new auditor.
April 28, 2017: Hongqiao's two major domestic subsidiaries, Shandong Hongqiao New Material Co. Ltd. and Shandong Weiqiao Aluminum and Power Co. Ltd., published their 2016 annual reports, and their financial statements for the first quarter of 2017. The 2016 annual reports were audited by a Chinese auditing firm CAC CPA Limited Liability Partnership with unqualified opinion.
May 2, 2017: Hongqiao announced its preliminary unaudited financial information for the period ended December 31, 2016.
June 27, 2017: The company announced that it redeemed in full the $400 million senior unsecured notes that were due on June 26, 2017.
June 28, 2017: Hongqiao announced that it entered into a strategic cooperation agreement with CITIC Bank for the grant of no more than Yuan 20 billion credit and the provision of financial services to the company.
June 30, 2017: Hongqiao's creditors on its $700 million syndicated loan extended a waiver with regard to suspension of its shares trading and the delay in the publication of its annual report; the waiver now extends until August 31, 2017, from end-June previously.
Hongqiao is able to produce 9 million mt/year of aluminum, but had been operating at a capacity of 7 million-8 million mt/year for the year to date.
Then on June 20, Hongqiao reduced its metal production capacity further by 250,000 mt/year.
A company official declined to specify the reason for the curtailment, however, other market sources told S&P Global Platts that Beijing was cracking down on unlicensed smelting operations.
Hongqiao can produce 13.5 million mt/year of alumina in China but has been turning out 13 million mt/year due to emission issues.
Additionally, the group has a 56% share in the Well Harvest Winning Alumina Refinery in Indonesia, a joint venture with the Harita mining group Harita Jaya Raya, and Singapore Winning International Group.
The Well Harvest refinery's annualized production rate is a little under 1 million mt/year.
S&P Global Ratings and S&P Global Platts are part of the S&P Global group of companies.
