Mirae Shuns Mongolian Mining Junk Debt as Coal Slump Drains Cash
Mirae Asset Management Co. is avoiding junk bonds of Mongolian Mining Corp. (975) in the absence of a rebound in coal prices, as Moody’s Investors Service says any so-called distressed exchange would add to downgrade risks.
The company’s 8.875 percent notes due March 2017 have declined 11 percent this year, bringing losses to 17 percent since the bonds were sold in March 2012. The debt, sold to investors at par, traded at about 69 cents on the dollar to yield 23.5 percent yesterday, Bloomberg-compiled prices show. Moody’s lowered its long-term rating on Mongolian Mining to Caa2 in November, its fourth-lowest junk grade, while Standard & Poor’s cut to its fifth-lowest level of CCC+ this month.
MMC lost money last year thanks to a three-year slump in benchmark coking coal prices, which reached a record-low on Feb. 5. The Ulaanbaatar-based, Hong Kong-listed miner is raising cash by selling assets and seeking to roll forward some loans as it faces $277 million of debt-servicing obligations this year, Moody’s said in a Feb. 17 statement.
“The company has to settle its loans coming due before they get to a distressed situation,” said Kim Jin Ha, a money manager in Seoul at Mirae. “We’ll only get back in after some positive signs, no matter where the bonds are trading at. We’ll wait for a clear improvement before we can say 70 cents is good value.”
Mirae, which manages about $59 billion, sold its remaining holdings of Mongolian Mining’s 2017 notes last quarter at a small loss, Kim said in an e-mail interview earlier this week.
MMC’s debt maturities include $105 million in promissory notes, the amortization of $102 million in bank loans and about $70 million in interest payments, according to Moody’s.
Further downgrade pressure could emerge if Mongolian Mining fails to defer maturing debt on a timely basis, reorganizes debt in a distressed exchange and coking coal prices remain depressed, Moody’s said.
A distressed exchange is a restructuring strategy by an ailing firm to avert bankruptcy by proposing to alter the contractual relationship between a debtor and various classes of creditors.
CreditSights Inc. placed an ‘underperform’ recommendation on the 2017 bonds in a Feb. 13 report, given the company’s “critical” financial woes. The miner produced 9.7 million metric tonnes of coking coal in 2013, meeting 79 percent of guidance, the research firm said in a separate January report.
MMC raised $90.3 million selling its Ukhaa Khudag-Gashuun Sukhait road assets to state-owned Erdenes MGL LLC on Feb. 13, according to a Hong Kong exchange filing. That will ease short-term liquidity strain, Moody’s said.
The miner hasn’t provided any update about a potential equity injection from existing or new shareholders, according to Simon Wong, the lead analyst in Hong Kong at Moody’s. Coking coal needs to be sustained above $150 a tonne for the miner to generate positive cash flows before attracting new investors, he said.
“The government has relaxed and tightened its foreign investment law in an unpredictable manner in the past few years,” Wong said by phone yesterday. “That has created some uncertainty for potential investors.”
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