Fitch affirms MAK’s expected IDR, bond rating at 'CCC +'

ZGM DAILY

2018-04-13 17:53 GMT+8

Fitch Ratings has affirmed Mongolyn Alt (MAK) LLC's expected Long-Term Issuer Default Rating (IDR) at 'CCC+' and the expected rating on the Mongolia-based coal mining company's proposed US dollar notes at 'CCC+' with a Recovery Rating of 'RR4'.

The ratings continue to be based on the capital structure and liquidity of MAK, assuming it completes the proposed bond deal and a debt restructuring. The company plans to repay some of its existing loan facilities that are in default with proceeds from the proposed bond. The terms of the proposed bonds have been revised to include additional collateral. The restructuring terms for the remaining loans, and consents and waivers signed by the respective lenders will also be revised for most lenders to benefit from the same collateral. Fitch has reviewed the revised terms outlined in the signed consents and waivers from each lender and we believe the revised terms will have limited impact on the pro-forma credit profile of the company and we have therefore affirmed the existing ratings.

If MAK is successful in raising USD 200 million in the proposed bond issuance, it now plans to repay USD 157.2 million of the outstanding loans from the European Bank for Reconstruction and Development and Deutsche Investitions-und Entwicklungsgesellschaft mbH. Under the previous terms, it had planned to repay the loans in full with the bond proceeds. Instead, it will now repay in full loans from Golomt Bank and part of the loans from Development Bank of Mongolia. It will also pay 50 percent of the overdue amount (excluding principal) on loans from Eksport Kredit Fonden.

The Long-Term IDR reflects Fitch's expectation that MAK's liquidity and debt maturity profiles will be adequate after the planned bond issue and restructuring of the remaining debt. The rating also incorporates Fitch's expectation that the company will be able to generate positive free cash flows over the medium term, barring a significant deterioration in coal prices. This is based on the assumption that MAK will be able to reduce production costs and capex during moderate coal price weakness. These expectations are counterbalanced by MAK's history of aggressive debt-funded investments, and limited access to external funding, which may heighten the company's liquidity risk if there is a sharp, sustained coal price or demand downturn and unfavourable capital market conditions.

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