(Repeat for additional subscribers)
May 16 (The following statement was released by the rating agency)
Fitch Ratings has today said that a proposal by China National Petroleum Corporation's
(CNPC; A+/Stable) subsidiary PetroChina (A+/Stable) to eventually sell
its interest in some of its pipelines does not affect CNPC's ratings nor its linkages with the
state. The proposed transaction is in line with China's target to have greater private-sector
participation in the energy industry.
PetroChina, which is 86.5% owned by CNPC, will initially transfer the First and
the Second West-East Gas Pipeline to a new entity, PetroChina Eastern Pipelines
Co., Ltd., and eventually sell its holdings in the entity through a public
tender on an equity exchange.
The transaction is positive for CNPC's standalone credit profile in the near
term. The transfer will result in a large cash inflow to CNPC, which, along with
the company's intention to reduce capex and invest in higher-yielding assets, is
positive for its financial profile. China Enterprise Appraisals Co., Ltd has
appraised the net asset value of the pipelines at about CNY39bn (USD6.3bn),
which is nearly 10% of PetroChina's gross debt of CNY414.6bn at end-2013, and
Fitch expects the transfer proceeds to be higher than the net book value.
In Fitch's view, CNPC's greatest strategic value to the central government lies
in its upstream operations and the establishment of the assets for delivery and
sourcing of energy, areas in which two other large state-owned oil and gas
companies also play important roles. CNPC is China's largest oil and gas
producer and it accounts for over 60% of China's total crude oil and natural gas
production and reserves. It owns or operates 80% of China's total cross-border
and cross-county natural gas pipeline network.
Although the government aims to increase private-sector participation in the
economy, it is likely to continue to control the development and operation of
and investments in pipelines, which are strategically important to China, a net
importer of oil and gas. Fitch believes CNPC will continue to be a major
investor and initiator of future pipeline assets, particularly as it strengthens
its import linkages, for example with Russia.
Fitch expects CNPC to retain strong influence over the operation of the
pipelines involved in the latest transfer and eventual sale. This is because
CNPC owns most of the upstream operations connected to the pipelines.
Historically, CNPC has been willing to relinquish ownership - but not control -
of major gas pipelines. In 2013, when PetroChina contributed its West Pipeline
Assets to a joint venture with Taikang Asset and the Guolian Fund, it retained
the right to offer to acquire the stakes from the other shareholders while the
other two shareholders could not sell their stakes for the first 10 years of the
20-year term of the joint venture.
The privatization of pipelines in China will accelerate as a more transparent
regulatory regime for pricing of oil and gas transmission costs is put into
place. Fitch expects the Chinese government to continue reforming state-owned
assets to promote higher private-sector participation and better capital
efficiency while maintaining control and influence over assets that are of high