S&P might lower Baosteel

S&P said it placed its BBB+ long-term corporate credit and issue ratings and cnA+ long-term Greater China regional scale ratings on the Baosteel Group Corp., Baoshan Iron & Steel Co. Ltd. and Bao-Trans Enterprises Ltd. on CreditWatch with negative implications.

At the same time, the agency placed its BBB long-term corporate credit and issue ratings and cnA long-term Greater China regional scale rating on Baosteel Resources International Co. Ltd. on CreditWatch with negative implications.

S&P said it placed the ratings on CreditWatch because it sees negative implications in both financial and business aspects from the proposal by Baoshan Iron & Steel, a Baosteel core subsidiary, to absorb Wuhan Iron & Steel, a Wuhan Iron & Steel Group (Wisco) core subsidiary. If the proposal goes through, the agency believes the combined group's financials are likely to deteriorate due to Wisco's higher debt burden.

As of end-2015, the pro forma debt-to-EBITDA ratio of the combined group is likely to be about 14 times, compared with about 9 times of Baosteel Group before the proposed merger.

"We also expect Baosteel Group's relatively strong competitive position and profitability to be affected by Wisco's weak product portfolio and operating efficiency," S&P credit analyst Claire Yuan said in a news release.

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