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Rating Action:

Moody's downgrades NGC's ratings to Ba2; changes outlook to stable

22 Nov 2021

New York, November 22, 2021 -- Moody's Investors Service (Moody's) downgraded National Gas Company of Trinidad and Tobago's (NGC) corporate family rating to Ba2 from Ba1. Simultaneously, Moody's lowered the company's baseline credit assessment (BCA) to ba2 from ba1. The outlook on all ratings is now stable. These rating actions follow Moody's announcement on November 19, 2021 that it had downgraded the Government of Trinidad & Tobago's ("Trinidad & Tobago") rating to Ba2 from Ba1 and changed the outlook to stable from negative.

Downgrades:

..Issuer: National Gas Company of Trinidad and Tobago

.... Corporate Family Rating, Downgraded to Ba2 from Ba1

.... Baseline Credit Assessment, Downgraded to ba2 from ba1

....Senior Unsecured Regular Bond/Debenture, Downgraded to Ba2 from Ba1

Outlook Actions:

..Issuer: National Gas Company of Trinidad and Tobago

....Outlook, Changed To Stable From Negative

RATINGS RATIONALE

The changes in NGC's rating and outlook were triggered primarily by the rating actions on Trinidad & Tobago's ratings and also considered the deterioration on the company's credit metrics in the last years mainly due to lower sales volumes.

NGC's Ba2 rating and ba2 BCA reflect the company's monopoly position in the transmission and distribution of natural gas from Trinidad & Tobago's offshore gas fields to the domestic petrochemical, electrical power generation, steel, and light industrial sectors. The BCA incorporates the company's economic burden of serving as a conduit for the government for national development, including the need to extend special credit terms to the gas consuming electric utility company. The BCA also considers the highly cyclical nature of the petrochemical sector and longer-term natural gas supply risk. In addition, in its joint default analysis, Moody's assumes a high default correlation between NGC and the sovereign, its sole shareholder, and a very high support probability from the government to the company, in case of need. The high level of dependence on credit factors, such as the oil and gas industry dynamics, that could cause stress to both the government and the company simultaneously, hinders the government's ability to provide extraordinary support. In addition, Moody's expects that NGC and the government will remain committed to avoiding NGC to increase debt to transfer funds to the government.

NGC has strong liquidity, with a cash balance and short-term investments of $1 billion in June 2021, which compares with negligible debt maturities in 2021-22 and annual maintenance capital expenditure of around $100 million. The company does not have committed banking credit facilities but has had minimal need for external funding over the last several years.

The stable outlook on NGC's Ba2 ratings is based on Moody's view that the company will sustain its credit metrics stable in the next 12 to 18 months.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

NGC's ratings could be downgraded because of materially weakened margin or cash flow performance, greater government interference via increased taxation or dividends that could jeopardize the company's liquidity profile, or a diversion of the company away from its core gas pipeline operations into public policy programs, including the extension of special credit terms to less profitable state entities. In addition, NGC's Ba2 rating could be downgraded because of a decreased likelihood that the government of Trinidad & Tobago would provide extraordinary support to NGC, or as a result of a downgrade of the government's Ba2 rating.

NGC's BCA could be raised if size and scale improves, in combination with sustainable low leverage and satisfactory returns. Although unlikely at this point, an upgrade of the ratings of the government of Trinidad & Tobago would provide a lift to the company's rating.

The methodologies used in these ratings were Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839, and Government-Related Issuers Methodology published in Feburary 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

NGC is a diversified natural gas transmission and distribution company 100% owned by the Trinidad & Tobago's government. NGC is Trinidad & Tobago's sole purchaser, transporter, and distributor of natural gas to the domestic natural gas-based energy sector and is also the designated agent of the Trinidad & Tobago's government to promote and facilitate natural gas-based investment in the country.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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