(Repeat for additional subscribers)
April 14 (The following statement was released by the rating agency)
Fitch Ratings has revised Repsol SA's Outlook to Positive from Stable and affirmed
its Long-term Issuer Default Rating (IDR) at 'BBB-'. A full list of rating actions is provided
The Outlook change reflects Fitch's expectations that the company will soon
receive up to USD6bn in nominal value of guaranteed Argentine government bonds
as compensation for the expropriation of 51% of former subsidiary YPF
(B-/Negative) and YPF Gas. This follows an agreement reached with the government
of Argentina in February 2014.
We also expect Repsol will monetise these bonds within the next two years. The
ratings will be upgraded after bonds equal to USD3bn are sold because of the
material improvement to the company's liquidity and net leverage metrics.
Further upgrades to 'BBB+' will depend on use of proceeds to fund acquisitions,
capital investments or reduce debt.
KEY RATING DRIVERS
Tangible YPF Compensation
Fitch will upgrade Repsol's Long-term IDR to 'BBB' once the company monetises at
least USD3bn of its guaranteed Argentine government bonds. Repsol's agreement
with Argentina removes much of the cash flow uncertainty we had indicated in our
December 2013 rating affirmation.
Repsol took additional steps to strengthen its financial profile after being
downgraded twice in 2012. Measures included the sale of treasury shares to
Temasek Holdings for EUR1bn and the implementation of a dividend reduction and
scrip dividend programme that generated cash savings of EUR2.5bn. The company
has also made pre-tax divestments of EUR4bn over the last two years.
Ambitious Upstream Plan
Repsol anticipates increasing oil production to 500 thousand barrels of oil
equivalent per day (mboepd) by 2016. In 2013 Repsol achieved average annual net
production growth of 4.2%. This was due to the start-up of five of its 10 key
projects, partly offset by production volatility in Libya. Fitch views the
company's target of consistently greater than 7% compound annual growth rate a
year for its upstream production as ambitious, as most of the integrated oil and
gas companies are struggling to maintain flat production growth rates.
Challenging Downstream Environment
Repsol's downstream core business has significant exposure to the Spanish
economy, which accounts for 20% of EBITDA. Downstream current cost of supply-
adjusted operating income declined 46.6% year-on-year in 2013 due to a weak
refining environment. Repsol's refining margin averaged USD3.3 per barrel in
2013, down 37.7% from 2012. At the same time, oil product sales rose just 1% in
2013 compared with 13% in 2012. Fitch expects the downstream market environment
in Europe will remain challenging in 2014.
Above-Average Operating Efficiency
Repsol's production profile is "small" according to Fitch's oil and gas sector
credit factors. However, the company has the highest profitability in terms of
EBITDAX per barrel, the lowest replacement costs and is one of two companies
with an organic replacement ratio of above 100%. Nevertheless, Fitch expects
this position could deteriorate if Repsol moves more production to OECD
countries with more complex geological formations and higher production cost
Positive: Future developments that may, individually or collectively, lead to
positive rating action include:
- Monetisation of the guaranteed Argentine government bonds equal to USD3bn
- Deconsolidated FFO adjusted net leverage around 2.5x (end-2013: 2.6x)
- Deconsolidated FFO fixed charge cover around 8x (end-2013: 3.9x)
- Upstream production size at around 500,000 barrel per day
- Stable deconsolidated FFO margin greater than 10% (end-2013: 6%)
- Capex spending of no more than 100% operating cash flow
- Improvement to downstream performance
Negative: The current Outlook is Positive. As a result, Fitch's sensitivities do
not currently anticipate developments with a material likelihood, individually
or collectively, of leading to a rating downgrade. However, the Outlook could be
revised to Stable due to:
-Unforeseen difficulties monetising at least USD3bn of Argentine government
-Downstream performance not improving
-Problems maintaining upstream organic growth rates near stated targets
LIQUIDITY AND DEBT STRUCTURE
Repsol had EUR9.3bn of total liquidity at end 2013, with EUR6.2bn of cash and
EUR3.1bn of available committed unused credit lines, excluding GN. This
comfortably covers Repsol's maturities to 2018. Additionally, Fitch considers
subsidiary Gas Natural SDG, S.A.'s (GN; BBB+/Stable) debt to be non-recourse to
FULL LIST OF RATING ACTIONS
Long-term IDR: affirmed at 'BBB-'; Outlook Revised to Positive from Stable
Senior unsecured debt: affirmed at 'BBB-'
Short-term IDR: affirmed at 'F3'
Repsol International Capital Ltd.
Hybrid capital instruments: affirmed at 'BB-'
Repsol International Finance
Senior unsecured debt: affirmed at 'BBB-'
Commercial paper: affirmed at 'F3'