Moody's - Trouble mounts for APAC miners as demand dries up

(03 September 2020)--Moody's Investors Service says in a new report that the pandemic-triggered demand shock and commodity price volatility will drive a protracted contraction in EBITDA and weaken the credit quality of rated mining and mining services companies.

"Aggregate EBITDA for our 24 rated companies in Asia Pacific will decline around 10% to $53 billion in 2020 from $59 billion in 2019. We expect earnings will not recover to 2019 levels for the next 2–3 years as coronavirus disruptions result in a severe contraction in global economic activity," says Maisam Hasnain, a Moody's Assistant Vice President and Analyst.

"Commodity profile and regional differences will influence the degree of credit deterioration, with companies whose primary earnings are exposed to thermal coal and metallurgical coal — the hardest-hit commodities — most affected," adds Matthew Moore, a Moody's Vice President and Senior Credit Officer.

Indonesian companies' leverage metrics will weaken the most, given their small scale and sizeable exposure to thermal coal. Meanwhile, although Chinese companies have, on aggregate, the weakest leverage metrics among rated companies in the region, most are state-owned and will benefit from strong access to funding and government support if required.

In this environment, three companies — Indonesia Asahan Aluminium (Persero) (P.T.) (Inalum, Baa2 negative), Vedanta Resources Limited (B1 negative) and Indika Energy Tbk (P.T.) (Ba3 negative) — are likely to breach their leverage downgrade triggers over the next 18 months.

Additionally, six companies will have insufficient internal cash sources to meet their cash needs through to June 2021. Four are government-owned and benefit from demonstrated access to bank and bond markets. Among the remaining two, Vedanta Resources has flexibility to upstream dividends from its cash-rich subsidiaries if it faces difficulty in raising new debt. Zijin Mining Group Company Limited (Ba1 stable) will continue to roll over its near-term maturities with Chinese domestic banks given its strong relationships with these banks.

While there will be minimal rated debt maturities over the next 18 months, around $4.4 billion of rated high-yield debt is set to mature in 2022. These high-yield companies will face substantial refinancing risk if economic disruptions are prolonged.