RPT-Fitch Affirms Total SA at 'AA'; Outlook Stable

Thu May 30, 2013 6:49am EDT

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May 30 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Total SA's Long-term Issuer Default Rating (IDR) at 'AA'. The Outlook is Stable. A full list of rating actions is at the end of this release.

The affirmation and Stable Outlook reflect Fitch's expectation that the company will maintain its relatively strong industry position and significant global market share as it works to strengthen its upstream portfolio by building on current projects. Fitch also believes the company will be able to maintain current credit metrics by funding the majority of upstream projects through a combination of asset disposals and operating cash flow. As of end-2012 the company had completed approximately USD15bn of asset disposals and expects to complete an additional USD5bn by 2014.

KEY RATING DRIVERS

High Investment Grade: Total SA's high investment-grade ratings reflect its significant production scale, competitive production costs relative to peers, and a well-diversified and vertically integrated profile across segments that allow it to retain a significant share of the global oil and gas industry. Its ratings are further supported by a rising position in the global liquefied natural gas (LNG) market.

Downstream Challenges: Total completed a restructuring of its downstream business that the company expects will increase profitability by 5% by 2015. This partially comes from a combination of reduced refining throughput in Europe and growing chemicals production in Qatar and South Korea. Fitch expects the Port Arthur deep conversion refinery in the US to benefit Total's downstream operations, thanks to higher average US refining margins and lower WTI crude oil feedstock costs in the US. The Saudi based Jubali refinery start-up in 2013 will be another milestone.

Geographical Concentration Presents Risks: Total's strong business profile is partly offset by a geographical production profile that is increasingly focused on emerging-market countries, particularly in Africa, which has overtaken Europe as the group's highest-producing region. The group faces some operational challenges in these markets, especially in deepwater production.

Financial Profile Should Improve: Total's financial profile is somewhat stretched for its current ratings due to increased borrowings used to maintain its cash-neutral funding position. Fitch expects some of the company's other credit metrics to improve in 2013, benefiting from a high oil price and funds from operations (FFO) margin of around 12%. Profitability remains stable as of 2012, with FFO of about EUR21.6bn, compared with EUR21.3bn at end-2011.

Stable Outlook: Total's Stable Outlook reflects Fitch's anticipation that the company will maintain its relatively strong industry position and significant global market share as it works to strengthen its upstream production portfolio by building on existing projects.

RATING SENSITIVITIES

Negative Factors: The ratings could be negatively affected by a failure to reach targeted production from upstream projects over the next three to five years, an increase in borrowings to fund capex and dividends instead of financing these with internally generated funds, or a prolonged weakness in the downstream refining and chemicals business with a negative impact on earnings. Net leverage above 2x on a sustained basis could also be negative.

Positive Factors: The ratings could be positively affected by a growing upstream production profile that more closely resembles those of larger peers, cash flow generation greater than the industry average, cost-containment positioning that leads to competitive advantages, or a greater market share in global LNG trade.

LIQUIDITY AND DEBT STRUCTURE

Strong Liquidity: Fitch anticipates that Total will maintain a net leverage ratio (measured as FFO-adjusted net leverage) of around 1.0x-1.5x over the business cycle (2012: 1.2x). Fitch believes Total will struggle to remain marginally free cash flow (FCF) positive due to high capex and steady dividends. Total presently enjoys ample liquidity with around EUR15.5bn of cash and cash equivalents and USD10.5bn of undrawn committed credit facilities as of 2012 that support the current ratings.

The rating actions are as follows

Total SA

Long-term IDR: affirmed at 'AA'; Outlook Stable

Senior unsecured debt: affirmed at 'AA'

Total Capital SA

Senior unsecured debt: affirmed at 'AA'

Total Capital International SA

Senior unsecured debt: affirmed at 'AA'

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