Lianhe Global has affirmed ‘BBB+’ global scale Long-term Issuer and Issuance Credit Rating of Jiangsu Shagang Group Company Limited (“Shagang” or “the company”); Issuer Rating Outlook remains Positive.
The Issuer Rating reflects Shagang’s competitive market position as the largest private steel producer in China, operating efficiency and above industry-average utilization rate, and operating cash flow generation capability. Although Shagang’s revenue and profitability are under pressure, partially owing to the weakening demand caused by the property market downturn and Covid’s disruption in China, we expect them to recover gradually in the next 12-24 months as the government’s investment in infrastructures could support the demand for steel products. The company’s rating, however, is constrained by its low self-sufficiency in raw materials, which makes it vulnerable to commodity price fluctuations, operational concentration and relatively lack of diversification into high-value-added products.
The Positive Outlook reflects our expectation that Shagang will sustain a stable and sizable scale of operations, positive operating cash flow and its healthy liquidity position. In addition, we expect the company to continue deleveraging with the proceeds from the potential disposal of Global Switch Holdings Limited (“Global Switch”), although this effort may be partially offset by the potential acquisition of Nanjing Nangang Iron & Steel United Co., Ltd. (“Nanjing Iron”) It is a Jiangsu-based steel producer with crude steel production capacity of c. 10 million tonnes, and we expect, if succeeded, the acquisition to further solidify Shagang’s market position.