CORPORATESISSUER IN-DEPTH 23 June 2016ContactsIrina Baron 1.212.553.4307Asst Dir-Research Associate irina.baron@moodys.comGlenn Levine 1.212.553.9595Assc Dir-Sr Research Analyst glenn.levine@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research,Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products.For further detail, please see the last page.EDF Case StudyAngang Steel's Credit Risk Rises As Local Rating Agencies Remain Sanguine Angang Steel (Ansteel) is one of Chinas largest steel producers, but in recent times slower economic growth, coupled with elevated steel production, have put downward pressure on prices and revenues. Ansteels Expected Default Frequency (EDFTM) has been steadily increasing since mid-2015 as the companys financial risk, as measured by its market leverage, has risen. Earlier this year, the company reported a 28% fall in revenues from CNY 74 billion in 2014 to CNY 53 billion in 2015. Ansteel reported a loss of CNY 615 million in the first quarter of 2016, compared with a CNY 19 million profit a year earlier. According to our probability of default model, Ansteel's credit worthiness should be closely monitored, though does not appear to be at risk of imminent default. The firms one-year EDF measure currently sits at 4.96% which corresponds to an implied rating of Caa2. This sits well below the optimistic views of Chinese rating agencies, which assess Ansteel as solidly investment grade with a low risk of default.Exhibit 1Ansteels One-Year EDF Measure vs EDF Distribution of Its Peer Industry Group (%)Source: CreditEdgeMOODY'S ANALYTICS CORPORATES2 23 June 2016 EDF Case Study: Angang Steel's Credit Risk Rises As Local Rating Agencies Remain SanguineAnsteels rising credit risk can be partly explained by developments in the macroeconomy. Domestic steel prices declined 45% from the start of 2014 to the end of 2015, pushing up EDFs throughout the Chinese steel sector. Chinas steel production remains at r...
