Hong Kong, August 26, 2021 -- Moody's Investors Service has affirmed the A1 issuer rating of China
National Petroleum Corporation (CNPC).
At the same time, Moody's has also affirmed the following ratings:
(1) The A1 senior unsecured rating on the bonds issued by CNPC Global
Capital Limited and guaranteed by CNPC;
(2) A2 issuer rating of CNPC Finance (HK) Limited (CPF HK), the
key offshore treasury subsidiary of CNPC, and the P-1 short-term
rating for CPF HK's commercial paper;
(3) A2 senior unsecured rating for bonds issued by CNPC General Capital
Limited and CNPC (HK) Overseas Capital Ltd. The notes are guaranteed
by CPF HK and ultimately supported by CPF HK's immediate parent,
China Petroleum Finance Co., Ltd (CPF), and its ultimate
parent, CNPC in the form of keepwell agreements.
The outlook on the ratings remains stable.
"The rating affirmation reflects our expectation that, as
the largest oil and gas producer in China, CNPC will maintain a
strong financial profile over the next 12-18 months, supported
by its balanced upstream and downstream businesses and large operating
scale. In addition, we expect the group to continue receiving
a very high level of government support," says Chenyi Lu,
a Moody's Vice President and Senior Credit Officer.
RATINGS RATIONALE
CNPC's A1 issuer rating incorporates its Baseline Credit Assessment (BCA)
of a1, and Moody's assessment of the company's very high level
of dependence on, and very high likelihood of support, from
the Government of China (A1 stable), in times of need.
The very high support level takes into considerations of CNPC's
1) ultimate 100% ownership by and close linkage with the central
government; 2) very high strategic importance to China, as
the largest national oil and gas company by oil and gas reserves and production
volumes; and 3) high reputational risk to the Chinese government
if it defaults.
The very high dependence level reflects the fact that (1) CNPC has a strong
institutional linkage with the Chinese government; and (2) CNPC and
the government are exposed to common political and economic risk factors.
CNPC's a1 BCA is underpinned by its (1) balanced upstream and downstream
business portfolio; (2) very large reserve and production scale;
(3) dominant position in China's oil and gas markets; and (4) resilient
and strong financial metrics.
CNPC has managed the challenges arising from the low oil price environment
and impact of COVID-19 in 2020 and maintained a solid financial
profile that supports its BCA. Amid a low oil price environment,
the group has cut operating costs and adjusted its capital expenditure
(capex) plan, while its oil and gas production volume increased
by 2%.
Given Moody's expectation of China's economic recovery and
high oil prices in 2021, CNPC's performance is likely to improve,
which will lead to better financial metrics in 2021.
Under Moody's Brent oil price assumptions of $66 per barrel in
2021 and $55 per barrel in 2022, CNPC's adjusted retained
cash flow (RCF)/net debt will rise to around 100% in 2021 and maintain
at around 85% in 2022, from around 65% in 2020.
Such a financial profile is strong for its a1 BCA.
Moody's forecasts CNPC will maintain its capex plan at around RMB300 billion
over the next 1-2 years and can adjust its capex if oil prices
drop materially.
In terms of environmental, social and governance (ESG) considerations,
CNPC's integrated oil and gas' exploration and production (E&P) businesses
are exposed to elevated carbon transition risk over the long term.
This risk is mitigated by CNPC's dominant market position in China's oil
and gas sectors and increasing proportion of natural gas production,
given that natural gas has a lower environmental impact than other fossil
fuels.
In addition, CNPC has also announced its carbon transition strategy.
CNPC plans to increase gas output to around 55% in its production
mix by 2025 from 43% in 2020.
CNPC's sound history of operating in the oil and gas E&P sector mitigates
its exposure to accidents and environmental hazards.
CNPC demonstrates sound governance practices and good information transparency
because PetroChina Company Limited — its key operating entity that
accounted for 93% of its revenue in 2020— is listed on multiple
stock exchanges, and CNPC is closely supervised by the Chinese government.
CNPC also discloses its quarterly financials in the domestic bond market.
CPF HK's A2 rating reflects its close linkage with its parent, CPF,
and its ultimate parent, CNPC. CPF and CPF HK are strategically
important to CNPC, because they manage CNPC's onshore and offshore
treasury operations. The keepwell agreements from CPF and CNPC,
which cover CPF HK's general debt obligations, reinforce Moody's
assumption of a high likelihood of extraordinary parental support for
CPF HK.
The rating difference between CNPC and CPF HK also reflects the modest
standalone credit profile of CPF HK and its weaker overall credit profile
than that of CNPC, in the absence of an explicit guarantee.
Moody's views keepwell agreements to be different from guarantees
in terms of the nature of the judgment and the procedures for enforcement.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
The stable outlook reflects Moody's expectations that over the next 12-18
months (1) CNPC's rating can withstand a moderate deterioration in its
BCA; and (2) CNPC's importance to the Chinese government and the
government's ability to support the company will remain intact,
the latter of which is mirrored in the stable outlook on China's sovereign
rating.
Moody's could upgrade CNPC's rating if the Chinese government's ability
to provide support strengthens, which would be illustrated by an
upgrade of the sovereign rating.
On the other hand, Moody's would downgrade CNPC's rating if the
Chinese government's ability to provide support weakens, which would
be illustrated by a downgrade of the sovereign rating.
Moody's could downgrade CNPC's BCA to a2 if the company embarks on large
debt-funded acquisitions or crude oil prices further drop sharply
beyond Moody's expectations, such that CNPC's RCF/net debt falls
and remains below 50% over a prolonged period.
However, a moderate weakening in the company's BCA is unlikely to
lead to a downgrade of its A1 rating, given the very high likelihood
of extraordinary support from the Chinese government.
CPF HK's rating is closely linked to that of CNPC. As such,
an upgrade of CNPC's rating would trigger an upgrade of CPF HK's rating.
Similarly, a downgrade of CNPC's rating would trigger a downgrade
of CPF HK's rating.
The methodologies used in these ratings were Integrated Oil and Gas Methodology
published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345,
and Government-Related Issuers Methodology published in February
2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207.
Alternatively, please see the Rating Methodologies page on www.moodys.com
for a copy of these methodologies.
China National Petroleum Corporation (CNPC) is the largest oil and gas
company in China by production volume. It is 90% owned by
China's State Council and 10% owned by the National Council for
Social Security Fund, and ultimately, the Chinese government.
The company's revenue totaled RMB2.1 trillion for the fiscal year
ended 31 December 2020.
CNPC Finance (HK) Limited (CPF HK) is a wholly owned offshore subsidiary
of China Petroleum Finance Co., Ltd, which is a treasury
subsidiary of CNPC. As of the end of 2020, CPF HK had total
assets of around $27.7 billion and an equity base of around
$3.8 billion.
The local market analyst for these ratings is Kai Hu, +86 (212)
057-4012.
REGULATORY DISCLOSURES
For further specification of Moody's key rating assumptions and sensitivity
analysis, see the sections Methodology Assumptions and Sensitivity
to Assumptions in the disclosure form. Moody's Rating Symbols and
Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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same series, category/class of debt, security or pursuant
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The Global Scale Credit Rating on this Credit Rating Announcement was
issued by one of Moody's affiliates outside the EU and is endorsed by
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60322, Germany, in accordance with Art.4 paragraph
3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies.
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The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Chenyi Lu
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
