Fitch Ratings has affirmed China Hongqiao Group Limited's Long-Term Foreign-Currency Issuer Default Rating (IDR) and senior unsecured rating at 'BB+'.

The Outlook is Stable.

The rating reflects Hongqiao's position as one of the world's largest aluminium smelters, with a competitive cost base that is supported by high raw-material self-sufficiency. The rating is constrained by limited funding diversification.

The Stable Outlook reflects our expectation that Hongqiao's competitive profitability will allow it to maintain net leverage at a level that is commensurate with its rating, even against our forecast of lower average selling prices for aluminium.

Key Rating Drivers

Stable Margin and Lower Leverage: We expect the EBITDA margin to improve to around 18% in 2023 and remain at similar level in the medium term. High coal prices in 2022 saw the EBITDA margin drop to 16%, from 29% in 2021, as electricity and transportation costs surged. The narrower margin was exacerbated by aluminium prices that had risen by more than 30% in 2021, causing rapid margin expansion. We expect aluminium prices to trend down in 2023 and remain stable in the medium term and for electricity and transportation costs to stabilise.

As a result of the margin squeeze, net debt/EBITDA reached 1.7x in 2022, from 0.5x in 2021. We expect 2023 net leverage to drop to below 1.5x in 2023 as the margin stabilises and to continue to trend down in the medium term.

Large Scale, Self-Sufficient: Hongqiao's large operating scale and vertical integration supports its market-leading profitability. Hongqiao is the world's second-largest primary aluminium producer, with around 6.5 million tonnes of capacity. In 2022, Hongqiao accounted for around 15% and 9% of domestic and global primary aluminum production, respectively. In addition, Hongqiao is fully self-sufficient in bauxite and alumina and had over 55% sufficiency in electricity in 2022.

Limited Diversification Mitigated: Hongqiao has limited product, geographical and customer diversification. However, it is in the midst of migrating around half of its capacity to Yunnan province, which will improve geographical diversification once completed in the medium term. Over 70% of the company's 2022 revenue came from primary aluminium, while its five-largest customers and largest customer accounted for around 53% and 38% of revenue, respectively. However, the high product and customer concentration is mitigated by the product's commoditised nature and diverse and high-quality end-demand, such as electronics, autos and appliances.

Concentrated Funding Profile: Over 60% of total debt of CNY64 billion was short-term at end-2022 and around 70% of the short-term debt was bank borrowings. The proportion of short-term debt during 2019-2021 stayed high, at between 40%-60%. While we expect Hongqiao will be able to roll over bank borrowings due to its strong banking relationships, the high concentration of short-term debt is a rating constraint.

Key-Man Risk Moderated: CITIC Group has a 12.7% shareholding in Hongqiao and is represented by two board members. CITIC is involved in Hongqiao's funding decisions and banking and capital market relationships. This reduces key man risk arising from the chairman and family's 64% share ownership.

Derivation Summary

Hongqiao is comparable with the following Fitch-rated peers; Alcoa Corporation (BBB-/Stable) and Aluminum Corporation of China Limited (Chalco, A-/Stable)

Hongqiao has a less sophisticated product range than Alcoa, but maintains a higher EBITDA margin due to the scale and efficiency of its core aluminium smelting business. Hongqiao's EBITDA net leverage is slightly higher than Alcoa's, and Alcoa has better operational and end-market diversity.

Hongqiao and Chalco have similar aluminium revenue scale. Chalco has lower profitability and similar leverage, but better interest coverage due to its lower funding costs. Chalco's rating also reflects its government-related entity status.

Key Assumptions

Fitch's Key Assumptions Within Our Rating Case for the Issuer

Total aluminum capacity to remain at 6.5 million tonnes

EBITDA margin of around 18% between 2023 and 2026 amid normalised average selling prices, supported by high raw material self-sufficiency

Capex to average at around 6% of revenue between 2023 and 2026 for facility upgrades and relocation

Around 50% dividend pay-out ratio between 2023 and 2026


Factors that could, individually or collectively, lead to positive rating action/upgrade:

Meaningful improvement in maturity profile and funding sources.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

Net debt/EBITDA remaining above 2.0x (2022: 1.7x).

Material increase in reliance on short-term financing.

Best/Worst Case Rating Scenario

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit

Liquidity and Debt Structure

Adequate Liquidity: Hongqiao had total debt of CNY64 billion at end-2022 and short-term debt of CNY43 billion, of which CNY13 billion was capital market debt. The company had available cash of CNY28 billion and CNY27 billion in unused bank facilities. We expect Hongqiao will be able to roll over bank borrowings due to its good banking relationships. It has already refinanced around 30% of its short-term capital market maturities in the year to date.

Issuer Profile

Hongqiao is the world's second-largest primary aluminium producer, with around 6.5 million tonnes of smelting capacity, behind Aluminum Corporation of China (A-/Stable), with had a capacity of around 7.4 million tonnes. Hongqiao accounts for around 15% and 9% of domestic and global primary aluminum production, respectively.

Hongqiao is a vertically integrated aluminium producer with its own bauxite supply in Guinea. It is also fully self-sufficient in alumina and over 55% self-sufficient in power generation. Hongqiao's aluminum cost base ranks in the second quartile on the global cost curve due to its vertically integrated operation and large economies of scale.


The principal sources of information used in the analysis are described in the Applicable Criteria.

ESG Considerations

Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit

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