Moody’s downgrades Zhengzhou Zhongrui

Moody’s Investors Service said it downgraded Zhengzhou Zhongrui Industrial Group Co., Ltd.’s corporate family rating to B3 from B2 and the senior unsecured rating to the notes issued by Zhongrui Industrial Group Ltd. and guaranteed by Zhongrui, China Coal Solution Co., Ltd. and Hechang Real Estate Group Co., Ltd. to Caa1 from B3. Moody’s changed the outlooks to stable from negative.

“The downgrades reflect our expectation that Zhongrui’s credit metrics will weaken over the next 12-18 months,” said Danny Chan, a Moody’s assistant vice president and analyst, in a press release. “In particular, softer sales and lower revenue recognitions from its property business will continue to weigh on Zhongrui’s credit metrics, amid a challenging operating and credit environment for small property developers, and despite the company’s recent efforts in improving its working capital cycles for its coal trading business and lowering its debt.”

Moody’s forecasts Zhongrui’s net debt/EBITDA will weaken to around 8.5x over the next 12-18 months from 8.2x for the 12 months ended June 30. Meanwhile, its interest coverage will stay weak at around 1.2x-1.3x over the next 12-18 months, like the 12 months ended June 30. These projected metrics position the company’s CFR at the B3 level.

“The downgrades also reflect Zhongrui’s high refinancing risks, given its large quantity of short-term debt and the tight credit conditions in China,”said Chan.

Zhongrui will also have about RMB 2.6 billion of bonds maturing over the next 12 months, including RMB 2 billion onshore bonds due July and August 2020, and $85 million offshore bonds due February 2020. In July 2019, Zhongrui raised $100 million through a private placement in the offshore bond markets. Any sign of a weakening in the company’s access to funding would further pressure Zhongrui’s rating.

© 2015 Prospect News.
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