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I AGREE
08 Apr 2011
Hong Kong, April 08, 2011 -- Moody's Investors Service has assigned a first-time Aa3 issuer
rating to China National Petroleum Corporation (CNPC).
The outlook for the rating is positive.
RATINGS RATIONALE
The Aa3 rating reflects CNPC strong standalone A1 credit profile and the
expectation of a very high level of support -- under Moody's
joint default analysis approach for government related issuers --
from the Chinese government (Aa3, positive), if needed,
in times of financial difficulty.
"CNPC is the largest integrated oil & gas company in China in
terms of oil& gas reserves and production. It commands a dominant
position on the Mainland in oil & gas production, as well as
the associated middle to downstream businesses," says Kai
Hu, Moody's Vice President.
"Its proven reserves of 23 billion boe and production volume of
1.5 billion boe in 2010 position it as one of the largest global
oil & gas companies rated by Moody's," adds Hu,
also lead analyst for CNPC.
"In addition, it maintains a sound track record of reserve
replacement and production growth, driven by the government's
strategy to secure energy resources," says Hu.
Furthermore, CNPC shows a balanced upstream and downstream business
portfolio. Its self-sufficiency ratio for crude oil is 100%,
providing it with a good hedge against oil price volatility. It
has a massive pipeline and retail infrastructure, which generates
sizable and stable cash flows.
Moody's also considers that CNPC has a solid financial profile,
which is in line with A rated oil & gas companies.
At end-2010, Adjusted EBIT/Interest was at 20.9x,
Adjusted RCF/Net debt at 118%, and Adjusted Debt/Capital
at 22%. However, due to its high level of capital
investment, it has outspent operating cash flow since 2009,
and this trend is expected to continue, leading possibly to higher
leverage. But, in this context, Moody's draws
comfort that the management will maintain its leverage at the level appropriate
to its rating.
At the same time, Moody's notes that CNPC's standalone
rating is tempered by: 1) the geopolitical and event risks associated
with its fast pace of expansion overseas; and 2) the social and political
responsibilities it bears -- as a pivotal state-owned
enterprise (SOE) -- such that its refinery business may
incur losses as the government, because of concerns over inflation,
prohibits cost past-through in an environment of high oil prices.
The standalone A1 rating of CNPC also reflects its holding company status.
The final Aa3 rating incorporates Moody's expectation of a very
high level of support from the Chinese government, if needed,
given the company's strategic importance to the economy, its
status as the one of the country's largest SOEs and the government's
100% level of ownership.
The positive rating outlook is in line with the positive outlook for the
China's sovereign rating and the expected very high level of government
support, if needed.
Moody's sees limited upside potential for CNPC's standalone
rating, given the company's high level of capital expenditure,
rising F&D and production costs, and the financial burden arising
from its social role. However, an upgrade of China's
sovereign rating and country ceiling could trigger an upgrade of CNPC's
rating.
The possibility of downward pressure on the rating is remote in the near
term, given the positive outlook. Nevertheless, a downgrade
of CNPC could be triggered by:1) a downgrade of China's sovereign
rating and country ceiling; 2) political or policy changes,
which reduce CNPC's strategic importance to the Chinese economy,
and which could adversely affect the expected level of support.
The standalone rating of CNPC would be lowered if: 1) there was
a material deterioration in the company's business profile;
2) CNPC fails to maintain a sound capital structure, while undertaking
large scale capital investments and business acquisitions, such
that leverage exceeds the company's target.
The principal methodology used in this rating was Global Integrated Oil
& Gas Industry published in November 2009.
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
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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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JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's assigns Aa3 rating to China National Petroleum Corporation
No Related Data.
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