Hong Kong, June 10, 2022 -- Moody's Investors Service has affirmed China Oilfield Services Limited's (COSL) issuer rating of A3. At the same time, Moody's has affirmed the following ratings:
(1) the (P)A3 provisional rating on the backed senior unsecured euro medium-term note (EMTN) program of COSL Singapore Capital Ltd., and the A3 backed senior unsecured debt ratings on the notes issued by COSL Singapore Capital Ltd. The MTN program and notes are guaranteed by COSL.
(2) the A3 backed senior unsecured debt rating on the notes issued by COSL Finance (BVI) Limited and guaranteed by COSL.
The outlooks remain stable.
"The affirmation of COSL's ratings with a stable outlook reflects Moody's expectation that the company's performance will remain steady, and that its financial leverage -- as measured by adjusted debt/EBITDA -- will remain healthy over the next 1-2 years, at a level appropriate for its rating," says Chenyi Lu, a Moody's Vice President and Senior Credit Officer.
RATINGS RATIONALE
COSL's A3 issuer rating incorporates its standalone credit profile and a three-notch uplift reflecting Moody's expectation that the company will receive a high level of support from its parent, China National Offshore Oil Corporation (CNOOC, A1 stable), in times of need.
COSL's standalone credit profile is supported by its diversified product and service lines, dominant position and strong franchise in China, sizable captive business from its parent CNOOC, strong credit metrics, and excellent liquidity profile.
However, the company's standalone credit profile is constrained by its earnings volatility, with a high exposure to the cyclical international drilling and oilfield services (OFS) businesses, and its geographic and high customer concentration.
COSL derived around 73%-84% of its revenue in 2020 and 2021 from CNOOC group companies, which provides good operating stability. CNOOC has steadily increased its capital investments in recent years under the Chinese government's (A1 stable) policy direction to increase domestic oil and gas production and reserves.
The company has actively diversified into well services, geophysical and surveying services, and marine support services in recent years, which have reduced its operating volatility. For instance, despite a drop in revenue from its drilling business in 2021, its total revenue remained largely stable in 2021 compared with 2020's level.
Moody's expects strong capital spending by CNOOC over the next 1-2 years to continue supporting COSL's revenue and earnings. Moody's also expects COSL to continue prudently managing its capital spending and control debt to keep its leverage at around 2.5x during the same period.
Moody's support assessment reflects (1) COSL's 50.53% controlling ownership by and close operational links with CNOOC; (2) COSL's high strategic importance to CNOOC given its integral role as the primary provider of CNOOC's drilling and oilfield services, as well as its leading position in the Chinese OFS industry, which is important for national energy independence; (3) high reputational risk for CNOOC if COSL defaults; and (4) CNOOC's strong ability to provide support, which is indicated by its A1 issuer rating.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Moody's could upgrade the ratings if COSL's standalone credit profile strengthens significantly through continued debt reduction and controlled capital spending, and further increases its business diversification and scale compared with global peers', without any significant adverse change in the support assessment.
Credit metrics indicative of upgrade pressure include Moody's-adjusted debt/EBITDA staying below 2.0x on a sustained basis.
Moody's could downgrade the ratings if CNOOC's ability to provide support to the company weakens, which would be indicated by a downgrade of CNOOC's rating; or if there is evidence of weakening support from CNOOC or CNOOC ceases to own a controlling stake in COSL.
COSL's rating would also come under pressure if its standalone credit profile deteriorates significantly because of unexpected market conditions or operational accidents, or the company significantly increases debt-funded capital spending and investments that weaken its financial profile.
Credit metrics indicative of downward pressure include Moody's-adjusted debt/EBITDA exceeding 4.5x on a sustained basis.
The principal methodology used in these ratings was Oilfield Services published in August 2021 and available at https://ratings.moodys.com/api/rmc-documents/74277. Alternatively, please see the Rating Methodologies page on https://ratings.moodys.com for a copy of this methodology.
Listed on the Hong Kong Stock Exchange in 2002 and Shanghai Stock Exchange in 2007, China Oilfield Services Limited — the largest integrated oilfield services provider in China by revenue — is a 50.53% owned subsidiary of China National Offshore Oil Corporation as of the end of 2021.
The parent company is an exploration and production firm and a dominant player in the Chinese offshore oil and gas sector.
The local market analyst for these ratings is Mike Zhu, +86 (010) 631-96506.
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 on https://ratings.moodys.com/rating-definitions.
For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the issuer/deal page for the respective issuer on https://ratings.moodys.com.
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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
Chris Park
Associate Managing Director
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
