TEXT-S&P says Repsol SA ratings unchanged after Spain downgrade
Oct 11 - Standard & Poor's Ratings Services said today that its ratings and outlook on Spain-based integrated oil and gas company Repsol S.A. (BBB-/Stable/A-3) are unchanged by the downgrade of the long-term sovereign credit rating on the Kingdom of Spain to 'BBB-' from 'BBB+' with a negative outlook. Repsol's exposure to the weak Spanish economy nevertheless remains a risk factor for the ratings, in our view. We understand that about 45% of capital employed by Repsol (excluding its Gas Natural and YPF operations) relates to the downstream business in Spain. We therefore classify Repsol's sovereign risk exposure as "moderate" under our criteria (for further details see "Nonsovereign Ratings That Exceed EMU Sovereign Ratings: Methodology And Assumptions," published June 14, 2011, on RatingsDirect on the Global Credit Portal.) We do not consider the ratings on Repsol to be affected at this stage by the macroeconomic situation in Spain, which was a factor in our recent downgrade of the sovereign. This is supported by our view that Spain's membership of the European Economic and Monetary Union (EMU), and the euro's global status as a reserve currency for transactions within the EMU, leads to only modest foreign exchange rate risk vis-a-vis other currencies. Furthermore, we believe Repsol's profitable upstream divisions provide significant international diversification and U.S. dollar revenues. In a theoretical scenario under which we lowered the sovereign rating below that on Repsol, our criteria would allow the rating on a company to exceed the sovereign rating by up to two notches as long as we still considered Repsol's exposure to sovereign risk as "moderate".