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Announcement: Moody's: Tianqi Lithium's proposed sale of interest in subsidiary is credit positive, no immediate ratings impact
Global Credit Research - 14 Dec 2020
Hong Kong, December 14, 2020 -- Moody's Investors Service says that Tianqi Lithium Corporation's (Caa2 negative) proposed financing from the sale of interest in its subsidiary to IGO Limited and its term loan amendment plan are credit positive because their completion will likely improve Tianqi Lithium's capital structure and liquidity.
However, these two announcements have no immediate impact on its ratings, because of the significant uncertainties relating to the various conditions and concerns that need to be resolved before the completion of the proposed financing and loan amendment plans.
Tianqi Lithium disclosed in an announcement dated 9 December that Australian mining company IGO Limited had agreed to acquire a 49% stake in its subsidiary, Tianqi Lithium Energy Australia Pty Ltd (TLEA), by subscribing to new shares issued by TLEA for a consideration of USD1.4 billion.
Tianqi Lithium will use USD1.2 billion of the proceeds to repay its borrowings, while the remainder will go towards financing operations at TLEA.
Tianqi Lithium also disclosed in another announcement dated 9 December that the company had received from its banks a term sheet stating that the maturity for its USD1.9 billion loan, originally due on 29 November 2020 and extended to 28 December 2020, could be rescheduled to November 2021. If the company repays at least USD1.2 billion of this loan, the remaining maturity could be further moved to November 2022.
The company is currently negotiating with its banks to finalize the loan amendment plan before 28 December 2020.
As disclosed in Tianqi Lithium's announcement dated 9 December, the absence of alternative plans and a failure to complete the loan amendment plan before 28 December 2020 could lead to payment acceleration and result in litigation and/or an asset freeze that could negatively impact its operations.
The proposed financing and the loan amendment plans are subject to a number of conditions and factors, such as approvals from relevant government and regulatory authorities.
Moody's estimates that, if both plans are completed, the proceeds from IGO's investment could help to reduce Tianqi Lithium's adjusted debt level by about 22% over the next 12-18 months and improve the company's debt maturity profile in light of the ongoing loan amendment discussion. Together, these two developments could improve Tianqi Lithium's capital structure and liquidity.
Under its proposed financing plan with IGO, while Tianqi Lithium's effective stake in its Greenbushes lithium mine in Australia will decline to 26% from 51%, the company will continue to consolidate TLEA and Greenbushes, given that it will hold a 51% stake in TLEA, which in turn holds a 51% stake in Greenbushes.
Tianqi Lithium's rating primarily reflects uncertainties relating to its loan amendment plan which, if not completed within a reasonable period of time, could lower recovery prospects for creditors, given its highly strained capital structure.
The company's rating also considers the company's solid position in the lithium chemical industry, driven by its supply of low-cost lithium minerals, although these strengths have been offset by its weak capital structure.
The negative outlook reflects Moody's concerns over Tianqi Lithium's tight liquidity and ability to arrange timely funding to meet its obligations.
Moody's will continue to closely monitor the progress and timing of the company's plans.
The principal methodology used in these ratings was Chemical Industry published in March 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1152388. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
Headquartered in Chengdu, Sichuan Province, Tianqi Lithium Corporation is a leading lithium chemicals producer that mines, makes and sells lithium minerals and lithium chemicals.
The company owns a 51% stake in the Greenbushes lithium mine in Western Australia. It also owns a 25.9% stake in Chilean chemical producer, Sociedad Quimica y Minera de Chile S.A. (Baa1 negative).
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Gerwin Ho VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Clement Cheuk Yiu Wong Associate Managing Director Corporate Finance Group JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077 Releasing Office: Moody's Investors Service Hong Kong Ltd. 24/F One Pacific Place 88 Queensway Hong Kong China (Hong Kong S.A.R.) JOURNALISTS: 852 3758 1350 Client Service: 852 3551 3077
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