Baku, Azerbaijan, July 9
By Elena Kosolapova – Trend:
S&P Global Ratings agency has assigned its 'BBB' long-term corporate credit rating to Kazakhstan-based oil producer Tengizchevroil LLP (TCO), the outlook is negative, the agency said in a message.
The agency also assigned its 'kzAA+' Kazakhstan national scale rating to TCO.
At the same time, the agency assigned its 'BBB' issue credit rating to the company's proposed $1 billion senior secured bond to be issued by subsidiary Tengizchevroil Finance International Ltd. and guaranteed by TCO.
TCO is developing one of Kazakhstan's major oil fields, Tengiz, and accounts for about 36 percent of all the hydrocarbon liquids the country produces and 12 percent of its oil reserves.
The agency’s assessment of TCO's business risk as satisfactory primarily reflects its view of the company's low-cost production, which allows it to generate meaningful positive free cash flow, even with low oil prices (before the expansion project).
At the same time, it incorporates the agency’s view of the company's exposure to high country risk in Kazakhstan, where all of its assets are located, together with limited diversity in terms of products and geography. TCO's business risk is also constrained by its reliance on the Caspian Pipeline Consortium (CPC) as a low-cost means of transportation, which currently supports above-average profitability but could meaningfully increase costs in case of any disruptions, said the message.
S&P assesses TCO's financial risk profile as significant, reflecting its expectation that the expansion project will materially increase debt to EBITDA. The agency anticipated debt to EBITDA will peak in 2020-2021 at about 4.0x, with a gradual reduction thereafter.
The negative outlook on TCO mirrors that on Kazakhstan, the message said. The agency expects TCO will raise debt by the end of 2016 and commence its investment project and that its shareholders will provide their share of the funding, as currently envisaged by the financing structure.
S&P would lower its long-term rating on TCO if it lowers its long-term foreign currency rating on Kazakhstan or revise down the T&C assessment by one notch. The agency could also downgrade TCO if it revises down its long-term oil price assumption by at least $10 per barrel and FFO to debt drops to well below 20 percent on average.
Other factors that could weigh negatively on the rating include the agency’s potential view that country risk in Kazakhstan had increased, for instance due to a material revision of the local tax regulation, or if there were major disruptions to the CPC pipeline, which the agency currently doesn’t expect.
S&P could also lower the rating if it observes less support from Chevron and other shareholders that would adversely affect TCO's capital structure.
S&P could revise the outlook on TCO to stable if it took a similar rating action on the sovereign ratings of Kazakhstan.
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