Fitch Affirms GEAR at 'B+'; Outlook Stable

full consolidation of Stanmore adjusted for minority leakages. The Recovery Rating of 'RR4' re ects average recovery prospect for its US dollar bondholders.

KEY RATING DRIVERS

Moderate Linkages with GEMS: Fitch maintains its assessment of moderate linkages between GEAR and GEMS under Fitch's Parent and Subsidiary Rating Linkage criteria. GEAR retains majority representation over GEMS's board, and is involved in managing GEMS's operation. GEAR's standalone operations are not signi cant and it solely depends on dividends from its subsidiaries, primarily GEMS, to service the debt at its level. An agreement between GEMS's shareholders ensures that the company will maximise pro t distribution by paying at least 80% of its free cash ow as dividends. However, GMR Coal Resources Pte. Ltd, which owns 30% of GEMS, has also appointed key management personnel and has veto power in major corporate transactions. Stanmore Acquisition to Support Diversi cation: We expect acquisition of the controlling stake in Stanmore to support GEAR's diversi cation efforts. We expect Stanmore to contribute to about 20%-25% of the group's EBITDA. However, we expect Stanmore to pay minimal dividends over the next three to four years given its capex plans to increases its production volumes. Stanmore's is a small met coal producer (FY19 production: 2.5mt) with healthy nancial pro le re ected in its net cash position. Stanmore Fully Consolidated: GEAR is acquiring a majority stake in Stanmore together with Ascend Global, a Singapore-based investment management fund, with GEAR indirectly holding a maximum of 60% in Stanmore; Ascend will indirectly fund and acquire all shareholdings beyond 60% in Stanmore obtained from the ongoing open offer. Fitch will fully consolidate Stanmore with GEAR in light GEAR's position as the strategic investor after adjusting for any leakages to other minority interests. The company acquired a 32% additional stake (end- 2019: 28%) in Stanmore for AUD82 million in 2020. Temporary Volume Decline at GEMS: We expect GEMS's sales volume to fall by about 10% to 27.5mt in 2020 (2019: 30.8mt) due to weaker demand on account of the economic slowdown caused by the coronavirus pandemic. This is down from our original expectation of a growth to 36mt in 2020. We expect the