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Rating Action:

Moody's assigns A1 rating to USD notes of CNPC (HK) Overseas Capital Ltd

Global Credit Research - 08 Apr 2011

Hong Kong, April 08, 2011 -- Moody's Investors Service has assigned an A1 rating to the guaranteed senior USD notes to be issued by CNPC (HK) Overseas Capital Ltd, a special purpose vehicle incorporated in British Virgin Islands and indirectly owned by China National Petroleum Corporation (CNPC, Aa3/Positive).

The rating outlook is positive, in line with the positive outlook of CNPC.

The notes will be guaranteed by CNPC Finance (HK) Limited -- which is in turn supported by its immediate parent, China Petroleum Finance Company Limited (CPF), and its ultimate parent, CNPC -- in the form of Keepwell Agreements.

The proceeds from the proposed issuance will be used to grant loans to an offshore subsidiary controlled by CNPC (the "Borrower").

The inter-company loan between CNPC (HK) Overseas Capital Ltd and the Borrower will be guaranteed by CNPC. The guaranteed amount falls under CNPC's pre-approved cross-border guarantee quota, as granted by the State Administration of Foreign Exchange (SAFE).

RATINGS RATIONALE

The rating reflects the following key factors:

1) The close linkage of the guarantor-CNPC Finance (HK) Limited, and its parent CPF, with their ultimate parent CNPC and their strategic importance within the group as the sole entities managing CNPC's onshore and offshore treasury operations. As a result we believe there are strong reputational, financial and operational incentives for CNPC to support both CPF and CNPC Finance (HK) Limited, if required.

2) The Chinese regulatory framework which recognizes and oversees the onshore and offshore roles that CPF and CNPC Finance (HK) Limited fulfill for the broader CNPC group. CPF is directly regulated by the China Banking Regulatory Commission. We believe this reinforces the likelihood that CNPC will act in a manner to preserve the financial strength of both treasury entities.

3) The presence of Keepwell Agreements in favor of CNPC Finance (HK) Limited from CNPC and CPF emphasize and reinforce the importance of the company in the CNPC group. According to these agreements, CNPC and CPF undertake to:

a) Maintain minimum 75% and 100% ownership levels respectively in CNPC Finance (HK) Limited

b) Ensure CNPC Finance (HK) Limited has a consolidated net worth of at least US$1

c) Make capital contributions or take other actions to enable CNPC Finance (HK) Limited to meet contractual or other payment obligation when due as per Articles of Association of CPF and CNPC Finance (HK) Limited.

d) Provide irrevocable and unconditional guarantees (by CNPC) to intercompany loans between the issuer and the Borrower; the terms of this specific inter-company loan will largely match with those of the senior notes, and the pre-approved SAFE quota for this guarantee mitigates potential FX payment restriction risk.

The 1-notch difference between CNPC's final rating and the notes' rating reflects Moody's opinion on the modest standalone profile of CNPC Finance (HK) Limited and that its overall credit profile remains weaker than CNPC, absent a guarantee.

Moody's considers that the Keepwell Agreements under New York law are different from an explicit guarantee in terms of the nature of judgment and procedures of enforcement. In addition, the final result of such legal claim is unclear to bond investors as no such litigation precedents (against Chinese corporates) are currently available.

An upgrade of CNPC's rating or the provision of a direct guarantee could trigger an upgrade of the rating of the notes.

The rating of the notes will be downgraded if: 1) CNPC's rating is downgraded; 2) CNPC's willingness and ability to support CNPC Finance (HK) Limited weakens significantly.

The principal methodology used in this rating was Global Integrated Oil & Gas Industry published in November 2009.

China Petroleum Finance Company Limited, headquartered in Beijing, is a non-banking financial institution established in 1995. It is currently 51% owned by CNPC and 49% owned by PetroChina Company Ltd. It functions as an exclusive internal treasury center for CNPC.

CNPC Finance (HK) Limited, registered in Hong Kong, is a wholly owned offshore subsidiary of CPF, and established in 2008. At end-2010, it had assets of HK$92bn and an equity base of HK$2.68bn.

China National Petroleum Corporation (CNPC) is the largest oil & gas company in China. It is 100% owned by the Chinese government and the largest SASAC (State-owned Assets Supervision and Administration Commission of the State Council) -owned SOE in China in terms of assets and second largest in terms of revenue. Its oil & gas reserves of 23 billion boe and production of 1.5 billion boe also position it among the top five integrated oil & gas companies in the world. Its revenue in 2010 was US$260.7 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

Hong Kong
Kai Hu
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077

Moody's Investors Service Hong Kong Ltd.
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Moody's assigns A1 rating to USD notes of CNPC (HK) Overseas Capital Ltd
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