CITIC Resources Holdings Ltd.

The positive outlook reflects our expectation that CITIC Resources will maintain its leverage at a much lower level compared with that during the industry trough of 2015-2016. The company will continue to generate free operating cash flow on the steady performance of its various business segments. We may raise the rating over the next 12 months if CITIC Resources can maintain its debt-to-EBITDA ratio at close to 5x. We expect such leverage improvement would be driven by better-than-expected oil prices and production levels. We could revise the outlook back to stable if CITIC Resources debt-to-EBITDA ratio is materially higher than our expectations. This could happen if: Oil price or production drops significantly; The company makes a large debt-funded acquisition; or

...CITIC Resources Holdings Ltd. will sustain its improved leverage over the next 12 months. CITIC Resources' leverage has improved materially because of a recovery in oil prices and its disciplined financial policies over the past two years. We expect the company's to maintain its improved debt-to-EBITDA ratio at 5.5x-7.0x over the next 12 months. That said, leverage will remain high, but substantially lower than the industry downturn in 2015-2016. Business scale will stay small, but diversified portfolio in different commodities will temper the risk. Small asset size with insignificant production and reserves in its oilfields weigh on CITIC Resources' weak business position. Yet, the company's presence in different commodity operations enables it to mitigate the risk of earnings volatility as the market trends of different commodities may not move in unison. Support from parent CITIC Group will remain intact. We believe CITIC Resources will continue to remain a strategically important subsidiary...

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