Hong Kong, February 21, 2019 -- Moody's Investors Service has upgraded Anton Oilfield Services Group's
corporate family and senior unsecured ratings to B1 from B2.
The ratings outlook is stable.
RATINGS RATIONALE
"The upgrade reflects our expectation that the company will be able to
maintain its improved credit profile over the next 12-18 months,
supported by higher earnings from a steady operating environment,
an enhanced cost structure, and prudent capital spending,"
says Chenyi Lu, a Moody's Vice President and Senior Credit Officer.
The improved operating environment is the result of increased capital
spending by upstream oil and gas companies, and increased natural
gas and shale gas production activities in China (A1 stable) in turn underpinned
by the government's target to increase natural gas in its primary
energy mix.
Moody's expects Anton's adjusted debt/EBITDA will improve to 2.5x-3.0x
over the next two years from 3.6x for the 12 months ended June
2018, supported by (1) higher earnings from revenue growth and improved
cost efficiencies; and (2) a limited increase in debt driven by more
prudent capital spending and working capital cycle management.
This level of leverage is appropriate for its B1 rating, and provides
it with a buffer against potential oil price volatility and its high short-term
working capital needs.
"The upgrade also reflects our expectation that the company will continue
to build strong operating capabilities and further enhance its track record
of operating geographically diversified businesses against the backdrop
of oil price volatility, while carefully managing emerging markets
risks," adds Lu, who is also Moody's Lead Analyst for Anton.
Anton's growing capabilities and more established operating track record
in its overseas businesses, reflected in its integrated services
offerings, expanding market shares and strategic partnerships with
Chinese oil majors and major global oil companies, will support
continued new order growth and partially mitigate oil price volatility.
Anton's strong order book, mainly driven by growth traction
in overseas markets, will provide revenue visibility in the next
two years. Its order backlog grew 24% to RMB4.35
billion at the end of 2018 from a year prior, representing 1.74x
of revenue in the 12 months ended June 2018, despite the oil price
volatility in Q4 2018.
Moody's expects the company's revenue to grow by 31.3% in
2018 and 22.2% in 2019, driven by (1) a recovery in
its domestic business, as Anton is well positioned to benefit from
the strong growth in China's natural gas sector over the next two years;
and (2) continued growth traction in its overseas markets, in particular
Iraq. Anton reported solid revenue growth of 33.2%
year-on-year to RMB1.2 billion in 1H 2018.
Moody's expects Anton's adjusted EBITDA margin will decline slightly to
32%-33% over the next two years from 33.6%
for the 12 months ended June 2018, as intense pricing competition
will be only partially mitigated by sustained cost and expense control
measures.
Anton's liquidity position is weak. At the end of June of 2018,
Anton had cash and cash equivalents of RMB451 million and restricted cash
of RMB411 million. These liquidity sources and its expected operating
cash flows of around RMB185 million over the next 12 months are insufficient
to cover its short-term debt of RMB940 million, bills payable
of RMB140 million, and estimated maintenance capital expenditure
of about RMB150 million over the next 12 months.
However, this weak liquidity position is mitigated by Anton's track
record of short-term debt refinancing, especially during
the weak oil price environment in 2015 and 2016, and its track record
of good access to the debt and equity capital markets.
Anton's B1 corporate family rating reflects the company's (1) integrated
business model; (2) strong market position in the domestic oilfield
services sector in China with strong technical capabilities in providing
key signature services; (3) growing capabilities, improved
customer mix and a more established track record of operating geographically
diversified businesses; and (4) solid financial leverage.
At the same time, Anton's rating is constrained by (1) its exposure
to oil price volatility and risks related to its overseas expansion;
(2) the company's small scale and high customer concentration; and
(3) its weak liquidity.
The stable rating outlook reflects Moody's expectations that over the
next 12-18 months, Anton's credit and liquidity profile will
gradually improve on the back of earnings growth, prudent working
capital management and capital investments.
The ratings could be upgraded if the company (1) achieves strong growth
in its order backlog, revenue and earnings; (2) prudently contains
its debt growth and maintains its current credit profile on a sustained
basis; and (3) sustains positive free cash flow generation and maintains
an adequate liquidity position.
The ratings could be downgraded if (1) Anton's order book declines materially;
(2) its financial leverage weakens, such that adjusted debt/EBITDA
exceeds 5.5x on a sustained basis, due to from declining
profitability or higher debt arising from pressure on its working capital;
or (3) its liquidity position weakens.
The principal methodology used in these ratings was Global Oilfield Services
Industry Rating Methodology published in May 2017. Please see the
Rating Methodologies page on www.moodys.com for a copy of
this methodology.
Listed on the Hong Kong Stock Exchange in December 2007, Anton Oilfield
Services Group was founded by its chairman, Mr. Luo Lin,
in 1999.
The company is a leading Chinese oilfield services provider, and
focuses on China's fast-growing natural gas sector. It offers
integrated oil/gas field services solutions covering various phases of
field development, including oil production operation services,
well completion technologies, and drilling technologies, globally.
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
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the rated entity is participating and the rated entity or its agent(s)
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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
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Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Chenyi Lu
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Clement Cheuk Yiu Wong
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
