S&P Downgrades Chalco Rating on Weak Financials

(Beijing) -- Standard & Poor's (S&P) on February 2 downgraded its long-term credit rating on Aluminum Corp. of China Ltd. (Chalco).

S&P put Chalco's credit rating at ‘BBB' from ‘BBB+', citing high production costs and subdued aluminum prices which have weakened the company's profitability.

Higher electricity costs and much lower aluminum prices resulted in operating losses for Chalco in the fourth quarter of 2011. S&P expected pressure on the company's profit margin to remain in 2012 in light of current aluminum price trends.

As a state-controlled company under the central government's social policies, Chalco is less likely to lay off surplus workers to bring down production costs, said the ratings agency.

Chalco's financials is unlikely to improve in the next couple of years given its aggressive expansion plan, said S&P, citing its ratio of debt to capital at 57 percent at the end of September, higher than its peers. 

The aluminum producer planned to issue up to 9 billion yuan worth of shares in the domestic market to ease its debt stress, but S&P predicted a low likelihood for a successful share sale by Chalco because the mainland stock market is volatile and the company's share price declined sharply in the past year.

But S&P also noted that Chalco is very likely to receive "timely and sufficient support" from the Chinese government in the event of financial distress, which boosted confidence in the company's credit.