Fitch has assigned Aluminum Corporation of China Limited's (Chalco, A-/Stable) fully owned subsidiary Chalco Hong Kong Limited (ChalcoHK) a Long-Term Foreign-Currency Issuer Default Rating (IDR) of 'A-'.

The Outlook is Stable. Fitch has also assigned ChalcoHK a foreign-currency senior unsecured rating of 'A-'.

The agency has simultaneously affirmed the 'A-' rating on Chalco's US dollar notes and the 'BBB+' rating on the senior perpetual securities, which were issued by Chalco Hong Kong Investment Company Limited, a wholly owned subsidiary of ChalcoHK. The notes are unconditionally and irrevocably guaranteed by ChalcoHK. Chalco provides credit support, via a keepwell deed and deed of equity interest purchase and investment undertaking, to the notes guaranteed by ChalcoHK.

ChalcoHK is Chalco's sole offshore financing platform and primary overseas investment-holding company, and its ratings are supported by strong linkages with its parent, in line with Fitch's Parent and Subsidiary Linkage (PSL) Rating Criteria. The ratings of Chalco are equalised with those of its parent, Aluminum Corporation of China (Chinalco, A-/Stable), which is rated two notches below the China sovereign's 'A+'/Stable rating under Fitch's Government-Related Entities (GRE) Rating Criteria. This reflects the state's strong incentive to support the company.

KEY RATING DRIVERS

Chinalco's Strong State Linkage: Chinalco is wholly owned by the state with a strong record of support, receiving consistent and sizeable annual subsidies, equity injections, asset injections and favourable tax treatments. It is the largest aluminium producer in the world, the largest lead and zinc producer in Asia, and a top three producer of copper and rare earth metals in China. Chinalco also makes irreplaceable contributions to China's military and aerospace sectors and has exposure to strategic rare earth metals and military alloys.

Chalco's Strong Linkage to Chinalco: Chalco is 32%-owned by Chinalco and is the key operating platform for its parent's aluminium and alumina businesses. Chalco accounted for 54% of Chinalco's total revenue in 2019, and holds most of Chinalco's bauxite resources, alumina and aluminium operations. Chinalco has absolute management control over Chalco and the operational integration between the two is also fairly high, with Chalco providing the majority of the materials for Chinalco's aluminium-fabrication business, and almost all of the group's fabrication needs for the military and aerospace sectors. Chalco's ratings are therefore equalised with those of Chinalco.

ChalcoHK's Strong Linkage to Chalco: ChalcoHK is highly integral to Chalco's financing strategy and is positioned as Chalco's sole offshore financing platform. The majority of ChalcoHK's debts, including its senior perpetual bond and senior unsecured bond, are raised to support Chalco's business operations and Chalco provides credit enhancement, including keepwell and EIPU deeds. Chalco regards ChalcoHK as a core subsidiary, appointing management and driving key decisions. We expect a default by ChalcoHK to create significant reputational risks for Chalco and jeopardise access to funding, as counterparties see ChalcoHK as an integral part of Chalco.

ChalcoHK is Chalco's primary overseas investment-holding company and owns most of Chalco's overseas mining projects, including Chalco's largest bauxite mine, the Boffa project in Guinea, which has available bauxite reserves of approximately 1.75 billion tonnes. Boffa started operating at the end of 2019 and the first batch of bauxite was shipped to China in February 2020. The ramping up of production will help Chalco reach bauxite self-sufficiency of 65% in the long term, from around 40% currently, and significantly improve its vertical integration.

DERIVATION SUMMARY

Chinalco's IDR is two notches lower than the China sovereign's rating, under Fitch's GRE criteria. Chalco's rating is equalised with that of its parent, Chinalco, under Fitch's PSL criteria. ChalcoHK's rating is equalised with Chalco under the same criteria. Fitch's assessment of Chinalco under the GRE criteria is in line with our assessment of China National Chemical Corporation Limited (ChemChina, A-/Stable), a market leader in agrochemicals and seeds in China. Both Chinalco and ChemChina have dominant market positions and are irreplaceable government vehicles for their respective industries.

KEY ASSUMPTIONS

We believe ChalcoHK's financial performance is driven mainly by the support from Chalco.

Fitch's Key Assumptions Within Our Rating Case for Chalco:

Revenue to increase from CNY191 billion in 2020 to CNY197 billion in 2022;

EBITDA margin of 6.1% in 2020 and 2021, increasing to 7.7% in 2022;

Capex of CNY9 billion a year in 2020-2022;

No major M&A and asset or capital injections.

RATING SENSITIVITIES

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

Positive rating action on the Chinese sovereign;

Increased likelihood of state support to Chinalco.

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

Negative rating action on the Chinese sovereign;

Decreased likelihood of state support to Chinalco;

Weakening linkages between Chinalco and Chalco;

Weakening linkages between Chalco and ChalcoHK.

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 https://www.fitchratings.com/site/re/10111579.

LIQUIDITY AND DEBT STRUCTURE

Liquidity Supported by Chalco: We expect Chalco to provide necessary liquidity support to ChalcoHK because of the strong linkage between the two entities.

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 www.fitchratings.com/esg.

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

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

RATING ACTIONS

ENTITY/DEBT	RATING		PRIOR
Chalco Hong Kong Limited	LT IDR	A- 	New Rating

senior unsecured

LT	A- 	New Rating

Chalco Hong Kong Investment Company Limited

senior unsecured

LT	A- 	Affirmed		A-

subordinated

LT	BBB+ 	Affirmed		BBB+

VIEW ADDITIONAL RATING DETAILS

Additional information is available on www.fitchratings.com

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