Mongolian Mining’s Rating Cut by Moody’s on Debt Concern

Mongolian Mining Corp., which sells 42 percent of the nation’s coal to China, was downgraded by Moody’s Investors Service because of concern it may not be able to pay its debt.

The miner’s rating was cut to Caa2, the fourth-lowest non-investment grade, from Caa1, as a result of a review started on Aug. 15, Moody’s said yesterday in a statement. The Ulaanbaatar-based company is negotiating waivers and relaxation of its bank covenants, Moody’s said.

“Its cash balance will be insufficient to address debt-servicing requirements” in the second-half of 2013 and 2014, Moody’s said in the statement.

Miners in Mongolia are under pressure as the nation’s coal exports dropped 20 percent in the first nine months of this year and prices declined. Mongolian Mining expects to boost cash and reduce debt-servicing requirements next year after a possible loan restructuring and sale of its paved road, Chief Financial Officer Ulemj Baskhuu said yesterday.

Discussions with creditors and the asset sale “will help improve and stabilize the company’s liquidity profile,” said Annisa Lee, a Hong Kong-based credit analyst at Nomura Holdings Inc. “This is a well-run company and it’s one of the lowest-cost producers.”

Coal Prices

Mongolian Mining fell 0.7 percent to HK$1.34 at the close in Hong Kong, compared to the 0.5 percent decline in the benchmark Hang Seng index. The stock has slumped 65 percent this year.

“The coking coal price weakness has impacted the company earnings and liquidity position,” CFO Baskhuu said yesterday in an e-mailed reply to questions. “However, because of the successful cost cutting measures and improvements in operational efficiencies, we were able to mitigate this impact.”

Mongolian Mining is seeking to reschedule loan repayments after it reported a first-half loss of $25.2 million, Chief Executive Officer Battsengel Gotov said in August.

The company has $600 million of bonds due March 2017, according to data compiled by Bloomberg. The notes pay an 8.875 percent coupon and yielded 18.9 percent as of 4:24 p.m. in Hong Kong, Bloomberg prices show.

“There are some other possible avenues for MMC to enhance its liquidity position in the next 12 months, such as a significant asset divestment, or equity injection, particularly after the relaxation of foreign investment laws in Mongolia,” Moody’s said. “However, these options may be limited by its low share price and weakened asset valuation.”

Mongolian Mining is unlikely to default, said Rachel Cheung, a Hong Kong-based equity analyst at BNP Paribas SA.

“It has good relationships with the Mongolian banks, good quality assets, and well-linked logistics,” she said today. “As long as coking coal prices improve, and it strengthens its distribution network with Chinese customers, the company should hold up.”

Before it's here, it's on the Bloomberg Terminal.