(The following statement was released by the rating agency)
Jan 31 - Fitch Ratings has affirmed Repsol SA's Long-term Issuer Default Rating
(IDR) at 'BBB-'. The Outlook has been revised to Stable from Negative. A full list of rating
actions is provided below.
The affirmation and revision of the Outlook reflect our expectation that
Repsol's deconsolidated credit metrics and business profile will not weaken to
levels consistent with a lower rating. Fitch believes Repsol should be able to
complete fixed asset divestments by the end of 2013 and use these proceeds to
reduce debt and stabilise credit metrics. In our opinion, Repsol's credit
profile has limited additional downside, even in the absence of fixed asset
divestments, which supports the Stable Outlook.
Fixed Asset Sales:
Fitch views Repsol's asset disposal programme as being very important to
strengthening its investment grade rating. Repsol is trying to dispose of
certain fixed assets and could use the proceeds to reduce financial
indebtedness. Fitch views the completion and closing of assets disposals in 2013
as supportive of the ratings. Repsol's Outlook would likely be revised to
Positive upon the completion of any material disposal, and upgraded if proceeds
are fully utilised for debt reduction.
New Strategic Plan:
Repsol has announced a new strategic plan that anticipates increasing oil
production to 500,000 barrels of oil equivalent per day by 2016 and improving
downstream profitability. Repsol plans around EUR19.1bn of total capex during
2012-2016, excluding Gas Natural (GN; 'BBB+'/Stable). Fitch views the company's
target upstream production growth rate of consistently greater than 7% a year as
ambitious, but the company is currently meeting this target.
Challenging Downstream Environment:
Repsol's downstream core business has significant exposure to the Spanish
economy, with 100% of middle distillates sold domestically, accounting for 25%
of EBITDA. Macroeconomic volatility could reduce demand for transportation
fuels, which would decrease refining margins and internally generated cash flow,
affecting the company's 'self-financing' investment plans.
In January 2013 Repsol announced that a total of 69% of Repsol shareholders
opted to be paid the interim dividend from 2012 earnings in shares, up from 64%
who chose to receive shares for the final dividend from 2011 earnings. Fitch
view this as positive, as it allows the company to conserve cash. However,
significant de-levering steps still need to be taken to improve credit ratios to
more solid investment grade levels.
GN Debt Non-Recourse:
Fitch considers GN debt to be non-recourse to Repsol. Consequently, Repsol is
rated on a deconsolidated basis and the analysis is largely driven by the
company's core businesses. However, GN's dividends to the parent company are
also reflected in the rating (EUR247m in 2012).