China Hongqiao’s debt-to-EBITDA nears 1x, responded with credit upgrade

China Hongqiao Group Limited, the world’s second-largest primary aluminium producer, has received a credit rating upgrade from S&P Global Ratings, moving from ‘BB-’ to ‘BB’ with a stable outlook. The upgrade is a ripple effect of the company’s improved financial condition, characterised by strong cash flow and reduced debt levels, despite a significant reliance on short-term debt.

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The optimistic upgrade is stimulated by vigorous demand for aluminium, driven by China’s energy transition initiatives. The company’s debt-to-EBITDA ratio is projected to remain between 0.9x and 1x until 2026, indicating healthy leverage levels.

However, approximately 60 per cent of China Hongqiao’s debt is short-term, posing potential liquidity risks. Effective management of this debt structure will be crucial for maintaining financial stability and investor confidence.

In a related recent development, China Hongqiao successfully issued a USD 330 million three-year dollar bond at a 7.05 per cent yield, marking its first long-term dollar bond since 2021. The offering attracted strong investor interest, with the order book exceeding USD 3.6 billion. Proceeds are earmarked for refinancing offshore debt and general corporate purposes.

The company’s financial performance has been strengthened by favourable market conditions wherein in the first nine months of 2023, its core operating entity, Shandong Hongqiao, reported revenue of RMB 97.866 billion and a net profit of RMB 6.525 billion, with a notable 226.2 per cent year-on-year increase in third-quarter net profit.

As global demand for aluminium continues to rise, particularly in renewable energy and infrastructure sectors, China Hongqiao’s enhanced credit profile positions it well to capitalise on emerging opportunities. Nonetheless, vigilant management of its debt structure and liquidity will remain climacteric in sustaining its financial health and market standing.