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.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns A1 rating to USD notes of CNPC (HK) Overseas Capital Ltd