International credit rating agency Moody’s has stated that the announced merger of Chinese steelmakers Baosteel Group and Wuhan Iron and Steel Group (WISCO) is credit-negative, and will put pressure on Baosteel's ratings.
According to Moody’s, the merger will strengthen the merged entity's market position as the largest steel producer by capacity in China, and the strongest supplier of value-added products, such as electric steel and cold-rolled automotive steel sheets in China; rationalize production capacity, management costs and capital expenditures, and reduce price cutting from competition in the domestic market. However, such benefits will take time to realize. On the other hand, Wuhan Iron and Steel’s weaker operation and financial position will weaken Baosteel's financial capacity. Moody's notes that debt leverage will remain high after the merger and increase downgrade pressure on the merged entity's ba1 baseline credit assessment.