New York, August 02, 2016 -- Moody's Investors Service ("Moody's") assigned
a Baa3 rating to Empresa Nacional del Petróleo (ENAP)'s proposed
USD 700 million senior unsecured notes due 2026. Proceeds from
the proposed notes issuance will be used primarily to repay notes due
2019 and other general corporate purposes.
The outlook is stable.
RATINGS RATIONALE
"ENAP's proposed issuance is a credit positive event and,
upon closing, the company's debt maturity profile will improve.
The constant need to access the debt capital markets is a concern but
ENAP's funding strategy and financial policies have allowed the
company to quickly adjust local prices to volatile costs and thus protect
its profit margin," said Nymia Almeida, a Senior Credit
Officer at Moody's.
ENAP's Baa3 rating is supported by its strategic importance to the Chilean
energy sector and its solid market share as a supplier of roughly 30%
of Chile's energy requirements. The ratings are also supported
by ENAP's long operating history and business diversity. ENAP's
ratings are constrained by the inherent volatility of commodity prices
and uncertain cash flow generation and profitability. In addition,
relatively high debt levels (5.8 times debt/EBITDA for the last
twelve months ended March 2016, as adjusted by Moody's) also
constrain the rating.
Since ENAP is 100% owned by the Chilean government, the company's
Baa3 foreign currency rating reflects the application of Moody's joint
default rating methodology for government-related issuers (GRIs).
ENAP's rating combines: (i) ENAP's underlying Baseline Credit Assessment
(BCA, which represents the intrinsic risk of the company,
regardless of implicit support) of b2, and (ii) the willingness
and ability of the government of Chile (Aa3 stable) to provide credit
support to ENAP in a distress situation. Moody's considers the
government's willingness to support the company as high.
ENAP is of strategic importance to the Chilean economy; the government
is also very involved in the company's budget approval and other policy-related
processes. In turn, the Chilean government's ability to provide
support to ENAP is measured by its Aa3 local currency rating and stable
outlook, weakened somewhat by the medium correlation between the
government and the company on credit factors that could cause stress on
both simultaneously.
ENAP's liquidity is weak, although supported by the benefits associated
with its ownership by the Chilean state. As of March 31,
2016, ENAP's cash stood at USD 303 million, which negatively
compares with the USD 434 million in debt maturing in the remaining of
2016. However, USD 347 million in debt are related to bank
short term facilities related to import of crude and oil products and
Moody's believes that could be rolled over relatively easily.
The company's refinancing risk is high. Its scheduled debt payments
as of March 2016 in the next years are as follows: USD284 million
in 2017, USD370 million in 2018, USD724 million in 2019,
and USD 1.8 Billion thereafter. Additionally, as fairly
typical for corporate entities in the region, ENAP does not have
committed lines of revolving credit. Refinancing concerns,
however, are partially tempered by good market access. Furthermore,
the company's bank loans are currently not subject to financial covenants.
During 2015 and the last twelve months as of March 2016 ENAP generated
positive free cash flow at USD 52 million and USD 281 million, respectively,
while strengthened its EBITDA margin to 10.4% and 11.4%,
respectively, from an average of 3.3% in the 2011-2014
period. Going forward, Moody's expects ENAP's
EBITDA generation to continue in the USD 650 million neighborhood driven
by improved operating costs and efficiencies. Since Chile keeps
local fuel prices at parity with prices in the US Gulf of Mexico,
changes in international crude prices pass quickly to local prices and
do not affect refining margins significantly. But increasing international
oil prices indirectly strain refining margins, since refiners are
prohibited to pass along increases in the costs of power generation,
which in Chile uses mostly diesel. ENAP has been investing in a
co-generation plant in its Bio Bio refining unit, whose power
generation will help ease its stress from higher power costs but will
not go into service before late 2017.
ENAP's stable rating outlook assumes that Chilean government support
of the company will remain high and that ENAP will continue to focus on
reducing debt balances over the medium-term.
A significant improved and sustained financial leverage profile more supportive
of the cyclicality and volatility of the refining sector could have positive
pressure on the ratings, specifically a debt/EBITDA at or below
5x.
If ENAP is unable to continue its deleveraging trend or if there are indications
of reduced implicit government support for ENAP, its BCA or its
foreign currency rating could be lowered.
ENAP is Chile national oil company and the second largest state-owned
company in the country. The company operates in three segments,
Exploration & Production (11% of revenues and 22% of
EBITDA in the last twelve months ended in March 2016), Refining
& Marketing (85% and 80%) and Gas & Power (4%
and -2%). ENAP owns three refineries in Chile and
is the only refinery company in the country, with a total crude
distillation capacity of approximately 230,000 barrels per day.
The company's upstream operations hold 145 million boe (barrels of oil
equivalent) in total proved reserves, 37% are concentrated
in Argentina, followed by Chile with 35%, Ecuador with
19% and Egypt with 9%.
ENAP was founded in 1950 and is headquartered in Santiago, Chile.
As of March, 2016, it had total assets in the amount of USD
5.5 billion.
The principal methodology used in this rating was Refining and Marketing
Industry published in August 2015. Other methodologies used include
the Government-Related Issuers methodology published in October
2014. Please see the Ratings Methodologies page on www.moodys.com
for a copy of these methodologies.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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 ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Nymia C. Almeida
VP - Senior Credit Officer
Corporate Finance Group
Moody's de Mexico S.A. de C.V
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No. 405 - 502
Col. Lomas de Chapultepec
Mexico, DF 11000
Mexico
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Marianna Waltz, CFA
MD - Corporate Finance
Corporate Finance Group
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