South and Southeast Asian national oil companies face higher risk of downgrade – Moody’s

National oil companies (NOC) in South and Southeast Asia, companies with ratings higher than their sovereigns face a higher risk of downgrade when compared with NOCs rated at par with their sovereigns, Moody’s Investors Service said.

“Petronas, Oil & Natural Gas Corporation and Oil India Limited are rated higher than their respective sovereigns and face a higher risk of downgrade than NOCs rated at par with their sovereigns. We will downgrade the final ratings of these three companies if their baseline credit assessments are lowered,” said Vikas Halan, a Moody’s Vice President and Senior Credit Officer.

“By contrast, there is scope for NOCs with final ratings at par with their respective sovereigns’ rating, such as PTT Public Company Limited and Pertamina (Persero) (P.T.), to benefit from varying degrees of additional ratings uplift due to sovereign support in situations where the companies’ baseline credit assessments deteriorate,” Rachel Chua, a Moody’s Analyst, added.

Moody’s also explained that PTT Exploration and Production Public Company Limited (PTTEP) can benefit from an additional notch of ratings uplift if there is a clear demonstration of extraordinary support from its Thai state-owned parent, PTT.

In a report titled “Oil and Gas — South and Southeast Asia: National Oil Companies Rated Above the Sovereigns Face Higher Risk of Final Ratings Downgrade” Moody’s pointed out that on 22 January 2016 it had placed the ratings of five NOCs and one NOC subsidiary in South and Southeast Asia on review for downgrade, as Moody’s recalibrated ratings globally for the sector in view of the sharp fall in oil prices.

Moody’s has lowered its oil price estimates and expects a slow recovery for oil prices over the next several years.

The report said that low oil prices will put pressure on most NOCs’ baseline credit assessments (BCAs). Such assessments provide indications of the companies’ standalone credit strength.

For all the companies under review, Moody’s expects that their BCAs will fall by at least one notch under Moody’s current oil price assumptions, without taking into account a change in management strategy for coping with the sustained pressure on oil prices.

Pure play upstream producers or integrated players with a small downstream presence will see more pressure on their fundamental credit profiles. Companies which exhibited high leverage profiles going into the downturn could experience a multi-notch downgrade of their BCAs, Moody’s said, adding that it will complete its reviews of the NOCs’ ratings by the end of the first quarter in 2016.


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