S&P Downgrades Mineral Corporation's Standalone Credit Rating to 'b-'... "Liquidity is Stable but Merger Timing Uncertain"

"Credit rating lowered to 'BBB-' just above speculative grade if internal credit rating drops to 'ccc-'"
"Downgrade if refinancing difficulties, further merger delays with Gwanghae Industrial Complex, or reduced government financial support likelihood occur"

[Asia Economy Reporter Moon Chaeseok] The global credit rating agency Standard & Poor's (S&P) announced on the 9th that it has downgraded the standalone credit profile (SACP) of Korea Mineral Resources Corporation from 'b' to 'b-' due to a deteriorating business environment. The corporation's credit rating and outlook were maintained at 'A/Stable.' S&P also stated that if variables such as further delays in the merger with Korea Mine Rehabilitation and Mineral Resources Corporation arise, the institution's credit rating could be lowered.

S&P judged that the low asset value of the overseas resource development projects operated by the corporation burdens its standalone credit profile. Due to the decline in mineral prices and the impact of the novel coronavirus disease (COVID-19), some projects have experienced production disruptions, and it is expected to record operating losses over the next 12 to 24 months.

Copper and nickel prices have fallen by approximately 15-20% compared to last year's average prices. The Ambatovy mine in Madagascar has also halted production since late last month to prevent the spread of COVID-19.

With the global economy in recession, S&P expects that asset sales promoted by the corporation will be difficult to proceed within the next 12 months.

Accordingly, S&P anticipates that the corporation will continue to experience negative operating cash flow for the next 12 to 24 months. Despite reducing capital expenditures, it expects borrowings to increase further.

The reason for the 'stable' rating outlook is the expectation that the Korean government will continue to provide support over the next 12 to 24 months. S&P believes that although the corporation is significantly affected by the resource development industry cycle, government support offsets some of the risks.

S&P also judged that the corporation's liquidity risk is not significant. A substantial portion of the corporation's debt will mature in the near term.

A $350 million bond matures on the 29th, and multiple won-denominated bonds worth between 90 billion and 130 billion won will mature next month, as well as in July, August, and October.

S&P believes that the corporation's position in the capital market is favorable, so refinancing maturing borrowings will not be a major issue. The corporation's creditworthiness is solid enough that it successfully issued bonds in the domestic market earlier this month for refinancing purposes, despite difficult funding conditions.

S&P assesses that if the corporation falls into financial difficulties, the Korean government (AA/Stable/A-1+) is extremely likely to provide special support. Since the government holds 100% of the corporation's shares, which is entrusted with mineral resource management, it is expected to provide active financial support and close supervision.

Thanks to this, as a major government-related entity (GRE), the corporation is expected to be able to raise funds at low costs in the capital market.

S&P views the timing of the merger between the corporation and the Korea Mine Rehabilitation and Mineral Resources Corporation as still uncertain. Although the Ministry of Strategy and Finance announced in March 2018 that the two institutions would be consolidated and a new integrated organization established, the related law has not passed in the National Assembly. Regardless of the government's intention to consolidate, the visibility of the timing for the passage of the specific bill is low.

However, S&P stated that if the possibility of government support for the corporation significantly decreases due to changes in government policy or priorities, the credit rating could be downgraded.

If the corporation's standalone credit profile is adjusted to 'ccc+,' the institution's credit rating could be downgraded by four notches to 'BBB-.'

Specifically, this could materialize if ▲ liquidity constraints expand due to a weakened position in the capital market making refinancing difficult, ▲ the merger with the Korea Mine Rehabilitation and Mineral Resources Corporation is further delayed, or ▲ the government's continuous financial support possibility diminishes.

If the corporation's standalone credit profile rises to 'bb-,' the institution's credit rating could be upgraded, but the likelihood is considered low.

S&P stated that the corporation must satisfy conditions such as ▲ completion of the merger with the Korea Mine Rehabilitation and Mineral Resources Corporation, ▲ a successful turnaround in resource development projects due to rising raw material prices and increased production at major overseas mines, and ▲ a significant reduction in borrowings to raise its credit rating.

This content was produced with the assistance of AI translation services.