Moody's assigns B1 rating to Nickel Industries Limited's proposed senior notes; outlook negative

(Sydney, April 11, 2023) -- Moody's Investors Service has assigned a B1 rating to Nickel Industries Limited's ("NIC") proposed senior unsecured notes issuance. The ratings outlook is negative.

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Proceeds from the notes are expected to be used to refinance NIC's existing USD325 million notes maturing in April 2024 and USD225 million notes maturing August 2025.

RATINGS RATIONALE

The B1 rating on the proposed notes issuance is aligned with NIC's B1 corporate family rating (CFR).

The negative outlook on NIC's B1 CFR reflects the company's liquidity risk due to its upcoming debt repayment obligations over the next several quarters, particularly the USD325 million senior unsecured notes maturing 1 April 2024.

Should the proposed notes issuance and refinance transaction complete, this would be credit positive and materially alleviate NIC's liquidity risk.

Without the proposed notes, Moody's estimates under an average price of USD15,000/t for NPI over the next 12 months that NIC would have sufficient liquidity, albeit with a thin buffer, to meet its upcoming debt repayment obligations, namely the April 2024 notes maturity and the mandatory amortisation on its notes maturing in 2025.

However, Moody's notes that prices for NPI, which currently represent the majority of NIC's output, have been falling and recently traded at around the USD13,250/t level. The rating agency estimates that at this price level, if sustained, NIC's ability to meet its upcoming debt repayment obligations from internal sources could be challenged.

Therefore, the rating could be downgraded if NIC is unable to refinance its upcoming maturities in a timely manner or NIC's liquidity is likely to become inadequate.

Additional constraints on NIC's rating include (1) its reliance on and concentrated exposure to Tsingshan group; (2) exposure to commodity price fluctuations as a producer focused on nickel pig iron and nickel matte; and (3) ongoing focus on growth spending and acquisitions, which limit liquidity build-up despite solid free cash flow generation.

NIC is currently progressing feasibility studies on the ENC HPAL along with Tsingshan, with final investment decision expected in late 2023 or early 2024. Tsingshan has agreed to provide a capex guarantee of USD2.3 billion for the project. However, given NIC expects to be a 60-70% owner of the project, approving of the project would likely involve material cash contributions from NIC. Moody's understands from NIC that it does not intend to proceed with a positive final investment decision on the project unless a financing plan that the company considers as prudent has been confirmed.

NIC's rating is supported by its steady operating profile and competitive cost position. The company's operating scale and diversity has improved following successful ramp-up of ANI production and will further enhance on ramp-up of ONI production in the coming months. NIC also recently converted HNI to produce nickel matte from nickel pig iron, which provides the company with a degree of diversity in terms of product and pricing exposures.

Also a supportive factor is NIC's maintenance of low financial leverage, and its demonstrated willingness and successful track record of raising equity for growth initiatives.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING

An upgrade is unlikely over the near term given the current negative outlook. The negative outlook could be revised to stable if the proposed notes issuance and refinance transaction completes, and there is further clarity around funding structure for the ENC project.

Ratings could be downgraded if: (1) the proposed issuance and refinance transaction does not proceed in a timely manner; and/or (2) NIC's liquidity is likely to become inadequate.

Methodology

The principal methodology used in this rating was Steel published in November 2021 and available at https://ratings.moodys.com/api/rmc-documents/356428. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.

Profile

Nickel Industries Limited ("NIC") is an ASX listed company with assets in Indonesia, primarily producing nickel pig iron but also nickel matte. NIC operates in partnership with the world's largest stainless-steel producer, Tsingshan, which is also the largest shareholder in NIC. (ends)