Hong Kong, June 17, 2020 -- Moody's Investors Service has assigned a A3 senior unsecured debt rating
to the USD senior and unsecured notes to be issued by COSL Singapore Capital
Ltd. and guaranteed by China Oilfield Services Limited (COSL,
A3 stable).
The proposed notes will be used to refinance COSL's existing debt
and for general corporate purposes.
RATINGS RATIONALE
"The A3 rating reflects the irrevocable and unconditional guarantee
provided by COSL, and the fact that the notes will rank pari passu
with COSL's other senior unsecured obligations," says Mike
Zhu, a Moody's Assistant Vice President and Analyst.
The proposed bond issuance will not materially increase COSL's leverage,
because the company will primarily use the proceeds to refinance existing
debt.
COSL's issuer rating stands at A3, which incorporates its standalone
credit profile and a four-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.
The four-notch parental uplift also reflects COSL's integral role
as the captive provider of CNOOC's drilling and oilfield services,
and its position as part of the Government of China's (A1 stable) strategy
to develop energy independence.
COSL's standalone credit profile is supported by its (1) diversified product
and service lines, (2) dominant position and strong franchise in
China, (3) sizable captive business from CNOOC, and (4) good
liquidity profile.
However, the company's standalone credit profile is constrained
by its earnings volatility given its high exposure to cyclical international
drilling and oilfield services businesses, as well as high geographic
and customer concentration.
Moody's expects the sharp drop in oil prices and weaker demand for
oil products will materially affect the capital spending of CNOOC and
other oil and gas exploration and production (E&P) companies serviced
by COSL. However, COSL's active diversification into
more asset light businesses, such as well services, and deleveraging
in recent years provide a buffer against its potentially increasing leverage.
In terms of environmental, social and governance (ESG) considerations,
COSL is indirectly exposed to carbon transition risks, which are
elevated for COSL's clients - predominantly CNOOC and other global
oil and gas companies over the long term. Such risks are mitigated
by CNOOC's dominant market position in offshore drilling, and China's
sustained demand for oil and gas. As China's reliance on imported
oil and gas rises, maintaining a stable domestic production will
remain important for the Chinese government.
In terms of social risks, COSL has maintained a sound track record
in health & safety and environmental matters over the past decade,
mitigating its exposure to accidents and environmental hazards associated
with E&P activities.
COSL has a good level of transparent information disclosure given it listing
on both the Hong Kong and Shanghai stock exchanges. Additionally,
it is under close supervision by CNOOC, which is in turn wholly-owned
by the central government.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATING
Moody's could upgrade the ratings if CNOOC's credit quality improves and
at the same time, COSL's standalone credit profile strengthens with
its adjusted debt/EBITDA staying below 3.0x on a sustained basis.
Moody's could downgrade the ratings if (1) COSL's performance materially
weakens as a result of unexpected market conditions or operational accidents,
or (2) the company significantly increases debt-funded capex and
investments that weaken its financial profile.
Credit metrics indicative of downward pressure include COSL's adjusted
debt/EBITDA exceeding 4.5x on a sustained basis.
Moody's could also downgrade the ratings if there is evidence of weakening
support from CNOOC, or if CNOOC ceases to own a controlling stake
in COSL.
The principal methodology used in this rating was Global Oilfield Services
Industry Rating Methodology published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062654.
Alternatively, please see the Rating Methodologies page on www.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 (CNOOC,
A1 stable).
CNOOC is an exploration and production firm and a dominant player in the
Chinese offshore oil and gas sector.
The local market analyst for this rating 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 at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.
For ratings issued on a program, series, category/class of
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