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Global Credit Research - 30 Oct 2013
London, 30 October 2013 -- Moody's Investors Service has today changed to positive from stable
the outlook on the Ba3 corporate family rating (CFR) of C.A.T.
Oil AG (CAToil), an independent oilfield services (OFS) company
with a strong position in fracturing and sidetracking services in Russia.
Concurrently, Moody's has affirmed this rating.
The rating action reflects CAToil's long track record of conservative
financial policies and robust through-the-cycle operating
and financial performance that is among the strongest in the Oilfield
Services (OFS) industry (five-year average adjusted debt/EBITDA
of below 1.0x and five-year average adjusted EBIT/interest
above 10.0x). Moody's also recognises the company's
historically prudent expansion strategy and ability to grow and diversify
its business organically while maintaining a very healthy financial profile.
Since 2006, CAToil has doubled its revenues and EBITDA through completing
two investment cycles including the successful launch of the third line
of business in 2012, high-class drilling, which as
well as increasing the company's size will provide for additional
growth and strengthen its business diversification.
In addition to robust operating and financial performance, CAToil's
rating continues to reflect Moody's view that the OFS industry fundamentals
in Russia will remain strong, at least over the next 18-24
months. CAToil is well positioned to benefit from these conditions
given its competitive business model with a well-invested modern
asset base, its premium position in fracturing and sidetracking
as well as its solid reputation and longstanding customer relationships.
The strong performance of CAToil's management, with successful
efficiency and cost-control measures, further supports the
company's healthy profitability and financial metrics and increases
its resilience during market downturns.
At the same time, CAToil's Ba3 rating remains constrained
by the company's (1) small size compared with that of its peers;
(2) concentrated customer base; and (3) exposure to risk factors
related to the Commonwealth of Independent States (CIS). In addition,
although CAToil is favourably positioned to withstand a potential market
downturn, the rating also incorporates the inherent volatility of
the OFS industry and its dependence on potential changes in oil &
gas market conditions including oil price environment, adverse regulatory
RATIONALE FOR POSITIVE OUTLOOK
The positive outlook on the rating reflects the potential for an upgrade
of CAToil's rating over the next 12-18 months, based on Moody's
expectation that the company will continue to deliver on its growth strategy
while maintaining robust operating and financial performance. As
the company's focus is on organic growth, Moody's does
not factor any sizeable acquisitions into the current rating.
WHAT COULD CHANGE THE RATINGS UP/DOWN
Moody's could consider an upgrade of the rating if CAToil were to
(1) continue to successfully grow its business as planned, focusing
on the smooth organic expansion of its three core product lines with a
balanced capital expenditure (capex) programme predominantly funded through
its growing operating cash flow; (2) maintain strong operating results
and conservative financial policy within our guidelines for the rating;
and (3) further enhance its liquidity profile to support the expansion.
Conversely, the rating could come under downward pressure if (1)
CAToil's leverage materially increases above expected levels,
either as a result of more aggressive debt-financed capex and shareholder
distributions or due to lower profitability, such that the company's
adjusted debt/EBITDA exceeds 2x on sustained basis; (2) the company's
operating performance deteriorates as a result of the loss of a major
customer/s; or (3) exploration and production (E&P) activity
in the region declines and has a negative impact on business fundamentals,
by exerting significant pressure on the company's market position
or capacity to generate sufficient cash flow to enable it to maintain
a solid liquidity profile.
The principal methodology used in this rating was the Global Oilfield
Services Rating Methodology published in December 2009. Please
see the Credit Policy page on www.moodys.com for a copy
of this methodology.
Based in Austria, C.A.T. Oil AG (CAToil) is
an independent OFS company that services the major oil & gas companies
in Russia and Kazakhstan. The company is a niche player in the
overall OFS market, with a strong position in fracturing and sidetracking
services as a result of its high-quality modern fleet. In
2012, the company successfully completed its investment programme
to develop high-class drilling as a third business line.
CAToil is a publicly traded company, with 29% of free float
traded on the Frankfurt Stock Exchange. The remaining 71%
is privately held by the company's two founding members.
In the 12 months ended June 2013, CAToil generated sales of EUR387
million and adjusted EBITDA of around EUR105 million.
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 rating action on the support provider and in relation to each particular
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 rating action, and
whose ratings may change as a result of this 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
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
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Associate Managing Director
Corporate Finance Group
Moody's changes outlook on CAToil's Ba3 rating to positive
Moody's Investors Service Ltd.
One Canada Square
London E14 5FA
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