TEXT-S&P summary: Winsway Coking Coal Holdings Ltd.
(The following statement was released by the rating agency)
Summary analysis -- Winsway Coking Coal Holdings Ltd. ---- 02-May-2012
Credit Rating History:
Local currency Foreign currency
28-Feb-2012 B+/-- B+/--
23-Mar-2011 BB-/-- BB-/--
Local currency Foreign currency
28-Feb-2012 B+/-- B+/--
23-Mar-2011 BB-/-- BB-/--
Rationale
The rating on China-based Winsway Coking Coal Holdings Ltd. reflects the company's potentially volatile profitability, its short operating history, and limited record of consistent financial management. Other weaknesses include Winsway's exposure to coking coal supply risks and transportation bottlenecks associated with coal imports from Mongolia. The following factors temper these weaknesses: (1) good demand potential for imported coking coal in China; (2) Winsway's good competitive position in its core business of coal imports from Mongolia; and (3) its growing handling capability.
We believe Winsway's "weak" business risk profile has deteriorated after the company acquired Canadian coal miner Grand Cache Corp. (GCC) in February 2012. Winsway's profitability is likely to become more volatile after the acquisition due to fluctuating coking coal prices and risks associated with coal mining. GCC's less competitive cost structure than global peers' compounds the effects of such risks to Winsway's profitability. We expect average selling prices of coking coal to continue to trend downward for the next few quarters due to global economic woes and softening steel markets.
Winsway's short history as a publicly listed company creates rating uncertainty, in our view. We view the company's acquisition of GCC as an indication of its aggressive investment appetite. The acquisition is also a deviation from Winsway's strategy, which emphasized asset-light trading operations with limited inventory and low sensitivity to volatility in coal prices.
In our view, Winsway is exposed to transportation bottlenecks and supply risks in Mongolia. The operating environment and supporting infrastructure in Mongolia are weak. In the second half of 2011, the Chinese government reduced railway capacity for coking coal transportation. As a result, Winsway's sales were hit and inventory increased nearly 100% year-over-year at the end of 2011. Winsway plans to work closely with its suppliers to reduce inventory levels. It could also source seaborne coking coal with expanded processing capacity to moderate the effects of transportation bottlenecks, unless coal prices fall.
We believe Winsway will continue to benefit from being an early-mover in importing coking coal from Mongolia. The company still has a significant share (of about 40% in 2011) of the coking coal imports from Mongolia.
The rating on China-based Winsway Coking Coal Holdings Ltd. reflects the company's potentially volatile profitability, its short operating history, and limited record of consistent financial management. Other weaknesses include Winsway's exposure to coking coal supply risks and transportation bottlenecks associated with coal imports from Mongolia. The following factors temper these weaknesses: (1) good demand potential for imported coking coal in China; (2) Winsway's good competitive position in its core business of coal imports from Mongolia; and (3) its growing handling capability.
We believe Winsway's "weak" business risk profile has deteriorated after the company acquired Canadian coal miner Grand Cache Corp. (GCC) in February 2012. Winsway's profitability is likely to become more volatile after the acquisition due to fluctuating coking coal prices and risks associated with coal mining. GCC's less competitive cost structure than global peers' compounds the effects of such risks to Winsway's profitability. We expect average selling prices of coking coal to continue to trend downward for the next few quarters due to global economic woes and softening steel markets.
Winsway's short history as a publicly listed company creates rating uncertainty, in our view. We view the company's acquisition of GCC as an indication of its aggressive investment appetite. The acquisition is also a deviation from Winsway's strategy, which emphasized asset-light trading operations with limited inventory and low sensitivity to volatility in coal prices.
In our view, Winsway is exposed to transportation bottlenecks and supply risks in Mongolia. The operating environment and supporting infrastructure in Mongolia are weak. In the second half of 2011, the Chinese government reduced railway capacity for coking coal transportation. As a result, Winsway's sales were hit and inventory increased nearly 100% year-over-year at the end of 2011. Winsway plans to work closely with its suppliers to reduce inventory levels. It could also source seaborne coking coal with expanded processing capacity to moderate the effects of transportation bottlenecks, unless coal prices fall.
We believe Winsway will continue to benefit from being an early-mover in importing coking coal from Mongolia. The company still has a significant share (of about 40% in 2011) of the coking coal imports from Mongolia.
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