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Announcement:

Moody's comments on rating reviews of Nippon oil and Nippon Mining groups

31 Mar 2010

Tokyo, March 31, 2010 -- Moody's Investors Service says it is continuing its review of the A3 senior unsecured rating of Nippon Oil (U.S.A.) Limited and Nippon Oil Finance (Netherlands) B.V. for possible downgrade. The companies are wholly-owned subsidiaries of Nippon Oil Corporation (NOC; not rated).

At the same time, Moody's is continuing its review of the Baa3 senior unsecured ratings of Nippon Mining Holdings Inc. (NMH) for possible upgrade.

The ratings have been on review due to the impending merger between NOC and NMH, which will consolidated under a new flagship - to be named JX Holdings Inc. - which will be listed on April 1, 2010.

If the merger is completed as planned, the emerging group is likely to be rated Baa1, absent any material structural subordination issues.

"The Baa1 rating would reflect the group's position as the largest oil refining and marketing company in Japan with enormous refining capacity", says Jun Sakurabayashi, a Moody's Analyst, adding "Nippon Oil was already Japan's largest refining and marketing (R&M) company, and the merged group will enjoy significant competitive position and scale economies, with around 40% of domestic refining capacity".

The group will also benefit from non R&M operations, through its exploration and production, as well as substantial metals and mining businesses. "These operations should contribute to earnings diversity, thereby reducing the group's exposure to refining margins", Sakurabayashi says.

However, Moody's remains concerned about the increasingly challenging domestic operating environment. "We expect overall demand for oil products to continue to decline as demand for alternative energy increases, and the use of fuel efficient vehicles rises", Sakurabayashi says. Reflecting mainly the weak refining margins, the two groups are forecasting a combined operating loss of JPY 70 billion (excluding inventory adjustments) for the FYE 3/2010.

Moody's recognizes the group's plan to realize meaningful synergies benefits through cost reduction initiatives over time, plus reduce reefing capacity by 600,000 barrels per day over time. These initiatives, if successfully completed, will clearly mitigate the impact of the very tough oil refining environment.

The merged group is expected to have higher financial leverage than would be appropriate for a Baa1 rating. Nevertheless, the group's scale, market position and business diversity are key credit drivers. In addition, Moody's expects strong systemic support for the merged group, providing support for the Baa1 rating.

Moody's notes that there is still uncertainty about the debt structure within the consolidated group. Moody's understands that majority of the group's current debt is likely to be transferred to the ultimate parent JX Holdings which is expected to be a pure holding company. Should the rated debt be subject to any material structural subordination, the Baa1 rating could be notched down, likely by one notch.

Moody's will conclude its review when there is more clarity about the status of the rated debt, expected in the next few weeks.

NOC and Nippon Mining Holdings have received the necessary regulatory approvals for the merger, and a parent company that will own all merged assets - JX Holdings, Inc.- will be listed on April 1, 2010.

Moody's last rating action affecting NOC occurred on December 5, 2008, when the rating was placed under review for a downgrade. The last rating action on NMH also occurred on December 5, 2008, when the rating was placed on review for possible upgrade

The principal methodology used in rating NOC and NMH was Moody's Global Refining and Marketing Rating Methodology published in December 2009 and is available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Nippon Oil Corporation, headquartered in Tokyo, is Japan's largest oil company. Nippon Mining Holdings Inc., headquartered in Tokyo, is the holding company of Japan Energy, a major oil refiner and distributor in Japan, and Nippon Mining and Metals, one of Japan's largest non-ferrous metals companies.

Tokyo
Jun Sakurabayashi
Analyst
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Tokyo
Shinsuke Tanimoto
Senior Vice President - Team Leader
Corporate Finance Group
Moody's Japan K.K.
JOURNALISTS: (03) 5408-4110
SUBSCRIBERS: (03) 5408-4100

Moody's comments on rating reviews of Nippon oil and Nippon Mining groups
No Related Data.
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