Singapore, March 17, 2016 -- Moody's Investors Service has concluded rating reviews for six national
oil companies (NOCs) in South and Southeast Asia.
Moody's confirmed the ratings of all six companies, namely:
1) Petroliam Nasional Berhad (PETRONAS); 2) Pertamina (Persero) (P.T.);
3) Oil and Natural Gas Corporation Ltd. (ONGC); 4) Oil India
Limited (OIL); 5) PTT Exploration & Production Public Co.
Ltd. (PTTEP); and 6) PTT Public Company Limited (PTT).
A list of each company's rating actions is included below.
These actions conclude the rating reviews started on 22 January 2016.
Oil prices have dropped substantially, reflecting continued oversupply
in the global oil markets, very high inventory levels and additional
Iranian oil exports coming on line. Moody's lowered its oil price
estimates on 21 January 2016 and expects a slow recovery for oil prices
over the next several years.
The drop in oil prices and weak natural gas prices has caused a fundamental
change in the energy industry, and the sector's ability to
generate cash flow has fallen substantially. Moody's believes this
situation will persist over several years. As a result, Moody's
is recalibrating the ratings of many energy companies to reflect this
industry shift.
The drop in energy prices and corresponding capital market concerns will
also raise financing costs and increase refinancing risks for exploration
and production companies.
However, the impact of the drop in oil prices and low natural gas
prices will vary substantially from issuer to issuer depending on their
production mix between oil and natural gas, the extent of contractual
protection in the selling price of natural gas, the ability to reduce
lifting cost and operating expenditure, the flexibility to reduce
capital expenditure without affecting production levels, reserve
replenishment needs and the expected deterioration of the companies'
financial profiles relative to its ratings.
The NOCs in South and Southeast Asia went into the downturn with relatively
low leverage and continue to maintain strong liquidity levels and access
to the capital markets. Despite Moody's expectation of a
weakening in the credit metrics for these companies, they will remain
appropriately positioned for their ratings. Consequently,
Moody's confirmed the ratings for all six companies.
However, despite the conclusion of Moody's reviews,
the NOCs' ratings could come under pressure if oil prices fall more
sharply than Moody's expects and the companies cannot reduce their
capex and dividends correspondingly. The ratings could also come
under further pressure if the companies pursue a more aggressive —
either organic or inorganic — growth strategy, and/or higher
shareholder returns.
Outlooks on all six national oil companies are stable
RATINGS RATIONALE
PETRONAS
The confirmation of PETRONAS' A1 issuer and senior unsecured debt
ratings reflect the company's strong net cash position at end-2015,
and the fact that Moody's expects PETRONAS to maintain such a strong
position at least until end-2016.
Moody's expects that PETRONAS' credit metrics during 2017
and 2018 will continue to support its A1 ratings.
Moody's says PETRONAS' retained cash flow to net debt will
likely stay in excess of 55%-60%, and EBITDA/interest
expense will be maintained in excess of 10x over the next three years
(2016-18).
The company's cash flow from operations over the next three years
— under Moody's price assumptions for oil — will remain
lower than its capex and dividends, resulting in large negative
free cash flows of about MYR100-MYR120 billion between 2016 and
2018. This situation is despite the company's efforts to
reduce capex and dividends.
Nonetheless, the negative free cash flow can be funded largely with
cash and liquid investments, which totaled MYR136 billion at end-2015.
PERTAMINA
The confirmation of Pertamina's Baa3 issuer and senior unsecured
ratings, as well as its (P)Baa3 senior unsecured MTN rating reflects
the relatively lower impact of low oil prices on its cash flows,
and the improving contribution of the company's downstream business.
Natural gas accounted for in excess of 55% of Pertamina's
total production in 2015. The company's natural gas production
volumes will increase by at least 50% in 2018, when it is
entitled to receive production from the Mahakam block awarded to it by
the Indonesian government (Baa3 stable) in December 2015.
In addition, nearly one-third of the company's EBITDA
for 2015 came from its downstream business, which will support the
company's earnings in a low oil price environment.
Pertamina's sales volumes for its petroleum products were nearly
three times its net entitlement of crude oil and natural gas in its upstream
segment in 2015.
The company benefits from recent fuel price reforms in Indonesia,
where the selling prices of petroleum products are now more closely linked
to market prices and fuel subsidies are being eliminated.
However, Pertamina's cash flows from operations will be insufficient
to cover its capex and dividends; resulting in increases in borrowings
and weak credits metrics.
Overall, the company's credit metrics will stay within the
tolerance levels for its Baseline Credit Assessment (BCA) of ba1.
Moody's expects that Pertamina's retained cash flow/ net debt
will remain in excess of 13%-15%, and its EBITDA/interest
will likely stay in excess of 4x-6x over the next three years (2016-18).
ONGC
The confirmation of ONGC's Baa1 domestic currency issuer rating
and Baa2 foreign currency issuer rating reflect the low impact of declining
oil prices on the company's cash flows, because ONGC benefits
from a lowering of fuel subsidies, a reduction in taxes, and
improved contributions from its downstream business.
While the company's cash flow from operations will fall and its
credit metrics will weaken, ONGC's financial metrics will
remain within the tolerance levels for its current ratings.
Moody's expects that ONGC's retained cash flow to debt will
remain in excess of 40%, and its EBITDA/interest will stay
in excess of 10x over the next three years (fiscal 2016- fiscal
2018).
Moody's notes that ONGC's liquidity position is strong,
with cash and cash equivalents of INR160 billion as of 31 March 2015 against
debt of INR63 billion maturing over the next 12 months.
In addition, the company has access to other sources of liquidity
on its balance sheet. For instance, investments in listed
entities are valued at approximately INR230 billion, of which,
the company can realize at least INR80-INR100 billion without any
disruption to its ongoing business.
OIL
The confirmation of Oil India Limited's Baa2 issuer and senior unsecured
ratings reflects the low impact of falling oil prices on the company's
cash flows, because OIL benefits from lower fuel subsidies and a
fall in costs linked to crude oil prices.
While the company's cash flow from operations will fall and its
credit metrics will weaken, its financial metrics will remain within
the tolerance levels for its current ratings.
Moody's expects the company's retained cash flow to debt to
remain in excess of 25% and its EBITDA/interest will stay in excess
of 10x over the next three years (fiscal 2016- fiscal 2018).
The company's liquidity position is strong, with cash and
cash equivalents of INR88 billion as of 31 March 2015 with no debt maturing
over the next 3 years and INR 38 billion of negative free cash flows.
Moody's notes that OIL can tap into other sources of liquidity on
its balance sheet. For example, its investments in listed
entities are currently valued at INR80 billion.
PTTEP
The confirmation of PTTEP's Baa1 issuer and senior unsecured ratings,
as well as its Baa3 subordinated rating reflects the company's relatively
lower exposure to oil prices, strong liquidity buffer and pro-active
capital management strategy.
With natural gas accounting for around 70% of its production volumes,
the company's average selling price of oil and natural gas will
fall by 45% in 2016 compared to 2014, despite oil prices
falling by 65% over the same period per Moody's crude price
assumption.
The company also benefits from its large cash balance of $3 billion
and short-term investments of $0.3 billion at 31
December 2015, its lower level of borrowings following proactive
debt repayment of over $1 billion in 2015, and no debt maturities
in 2016-17. Moody's expects PTTEP will generate negative
free cash flows of around $1.8-1.9 billion
over 2016-18. Moody's expectations take into account
capex of $6.4 billion in 2016-18, which the
company has reduced from $10.4 billion in its original plans,
acquisition costs of $1.0-1.2 billion to augment
its declining reserves, as well as some flexibility in dividend
reductions.
Moody's expects the company's credit metrics will stay within
the tolerance levels for its Baa1 ratings which incorporate a one-notch
uplift from parental support. The company's retained cash
flow to debt will stay at 35%-40% and EBITDA interest
coverage will remain over 9.0x for 2016-18.
PTT
The confirmation of PTT's Baa1 issuer, senior unsecured bond
and senior unsecured bank credit facility ratings reflects the relatively
lower exposure of the company's operating cash flows to oil prices,
its stable mid-stream natural gas pipeline business, and
the improving profitability of its downstream refining and petrochemical
operations.
For the next three years (2016-18), PTT's reliance
on its upstream business will reduce such that it generates around one-third
of EBITDA from its upstream, midstream and downstream businesses.
Moody's expects PTT's EBITDA will improve from 2017,
given that its higher downstream earnings -- across its
refining and petrochemical operations -- and the increase
in earnings from its natural gas pipeline and expanded LNG terminal will
more than offset the decline in upstream earnings.
PTT also benefits from its strong liquidity profile with THB240 billion
of cash balance and THB107 billion in short-term investments at
end-2015, compared to THB77 billion of debt coming due over
the next 12 months.
Moody's expects PTT's credit metrics to remain healthy for
its BCA of baa2, with retained cash flow to net debt at 25%-30%
and EBITDA/interest at 6.5x-8.0x over the next three
years.
The principal methodologies used in rating PTT Public Company Limited,
Petroliam Nasional Berhad, PETRONAS Capital Limited, PETRONAS
Global Sukuk Ltd. and Pertamina (Persero) (P.T.)
were Global Integrated Oil & Gas Industry published in April 2014,
and Government-Related Issuers published in October 2014.
The principal methodologies used in rating Oil and Natural Gas Corporation
Ltd., ONGC Videsh Limited and Oil India Limited were Global
Independent Exploration and Production Industry published in December
2011, and Government-Related Issuers published in October
2014. The principal methodology used in rating PTT Exploration
& Production Public Co. Ltd. and PTTEP Canada International
Finance Limited was Global Independent Exploration and Production Industry
published in December 2011. Please see the Ratings Methodologies
page on www.moodys.com for a copy of these methodologies.
Following ratings were confirmed
..Issuer: Oil and Natural Gas Corporation Ltd.
.Local Currency Issuer Rating, Baa1
.Foreign Currency Issuer Rating, Baa2
..Issuer: ONGC Videsh Limited
.Backed Senior Unsecured Regular Bond/Debenture, Baa2
..Issuer: Oil India Limited
.Issuer Rating, Baa2
.Senior Unsecured Regular Bond/Debenture, Baa2
..Issuer: Pertamina (Persero) (P.T.)
.Issuer Rating, Baa3
.Senior Unsecured MTN Programme, (P)Baa3
.Senior Unsecured Regular Bond/Debenture, Baa3
..Issuer: Petroliam Nasional Berhad
.Issuer Rating, A1
. Senior Unsecured Regular Bond/Debenture, A1
..Issuer:PETRONAS Capital Limited
. Backed Senior Unsecured MTN Programme, (P)A1
.Backed Senior Unsecured Regular Bond/Debenture, A1
..Issuer: PETRONAS Global Sukuk Ltd.
.Backed Senior Unsecured Regular Bond/Debenture, A1
..Issuer: PTT Public Company Limited
.Issuer Rating, Baa1
.Senior Unsecured Bank Credit Facility, Baa1
.Senior Unsecured Regular Bond/Debenture, Baa1
..Issuer: PTT Exploration & Production Public
Co. Ltd.
.Issuer Rating, Baa1
.Senior Unsecured Regular Bond/Debenture, Baa1
.Subordinated Debt Rating, Baa3
..Issuer: PTTEP Canada International Finance Limited
.Backed Senior Unsecured Regular Bond/Debenture, Baa1
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.
The below contact information is provided for information purposes only.
Please see the ratings tab of the issuer page at www.moodys.com,
for each of the ratings covered, Moody's disclosures on the
lead analyst and the Moody's legal entity that has issued the ratings.
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.
Vikas Halan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Moody's concludes reviews of six South and Southeast Asian national oil companies
