Moody's downgraded the corporate family rating of Tianqi Lithium Corp. to B1 from Ba3, citing weak measures to lower its leverage that increased on the back of its acquisition of Sociedad Quimica y Minera de Chile SA.
"The ratings downgrade mainly reflects the materially smaller-than-expected proceeds from Tianqi Lithium's rights issue. Such a situation will result in the company's slower-than-expected deleveraging and tighter-than-expected liquidity," said Gerwin Ho, vice president and senior credit officer at Moody's.
The proceeds from Tianqi's recently announced rights issue are expected to amount about 3.0 billion Chinese yuan, lower than the upper range of 7.0 billion yuan estimated by Moody's. This would lead the financial leverage to sit elevated at about 7.5x for over 12 months, the rating agency said.
The outlook on Tianqi is negative, reflecting its weak liquidity position and uncertain refinancing programs.
While the company's profits are expected to improve owing to rising sales volume through the next 18 months, fluctuating lithium chemical prices could restrain Tianqi's cash flow generation and slow the deleveraging process, Moody's said.
As of Dec. 20, US$1 was equivalent to 7.01 Chinese yuan.