Fitch Ratings: APAC Coal Producers Well Placed to Navigate Tighter Funding Climate

(Fitch Ratings-Hong Kong/Singapore-30 November 2023)--Fitch Ratings believes a slower energy transition in Asia-Pacific (APAC) will put regional coal companies in a better funding position compared with non-Asian peers, as it should allow for stable coal-based earnings, robust cash accumulation amid strong coal prices, and some flexibility in bank lending policies.

Globally, banks’ financing policy frameworks for lending to companies with thermal coal exposure have become more stringent since the 2015 Paris Agreement on climate change. However, the dynamic in APAC varies, reflecting nation-specific factors, including governments’ stance towards the energy transition and energy security. Some fast-expanding Asian economies aim for a more measured transition pace away from coal, partly because of questions over how the change may affect power supply and economic growth prospects.

Among the three major coal-producing countries in APAC where Fitch has rated issuers in the sector – Australia, Indonesia and China – Australian banks lead with the most stringent policies, while Indonesian and Chinese banks continue to extend loans to the domestic coal sector. Coal mining entities range in their strategic reactions to escalating environmental, social and governance (ESG) considerations, from taking proactive measures, such as publicly committing to diversification goals, to no response at all.

Indonesian Companies' Coal Transition Plan Status

(Fitch-rated issuers)

Nonetheless, we expect APAC companies that adopt meaningful diversification strategies that go beyond thermal coal will achieve better funding access in the medium term compared with those that maintain conservative financial profiles with no diversification plans, as thermal coal companies are likely to face gradually reduced funding capacity from their supporting banks over the next three to five years. Diversification strategies will thus have a rising influence over time on the credit profiles of APAC issuers with coal exposure. (ends)