(The following statement was released by the rating agency)
Feb 01 - Fitch Ratings has affirmed Origin Energy Ltd's
(Origin) Long- and Short-Term Foreign-Currency Issuer Default Rating (IDR) at
'BBB+' and 'F2' respectively. The Outlook is Stable.
At the same time, the agency has affirmed Origin's foreign-currency senior
unsecured rating at 'BBB+'. Origin Energy Contact No.2 Ltd's preference shares
have also been affirmed at 'BBB-'.
Origin's financial risk profile will remain under some pressure over the medium
term from large debt-funded capex and long lead times to revenue generation, in
particular that associated with its share of Australia Pacific LNG (APLNG).
Fitch's analysis of the capex associated with the full two-train development by
APLNG is estimated at a total cost of USD20bn. The agency's expectations are
based on the assumption that Origin's share of the total investment will be
funded by internal resources and committed undrawn debt facilities. APLNG's gas
liquefaction project with a capacity of 9 million tonnes per annum (mtpa)
benefits from a 20-year binding offtake agreement for 7.6mtpa to China Petroleum
& Chemical Corporation ('A+'/Stable) and for 1mtpa to The Kansai Electric
The agency also notes the confirmation of APLNG's USD8.5bn project finance
facility in November 2012. In Fitch's view, this reduces the need for funding
requirements by project sponsors, including Origin. Fitch's treatment of
Origin's adjusted debt consolidates Origin's pro-rata share of APLNG's project
Origin has sought to monetize its attractive upstream acreage to support its
sizeable funding commitments and financial profile. In particular the agency
notes the long-term gas supply agreement with MMG for supply of up to 22 peta
joules (PJ) of future gas over a seven-year period, announced on 20 December
2012 and for the supply of up to 365PJ of future gas to GLNG partners over a
10-year period, announced on 2 May 2012.
In addition, Origin has raised around USD300m from an arrangement to sell a
portion of its future oil and condensate production. Fitch treats such amount as
debt in the agency's adjusted debt calculation for Origin. However, this
improves Origin's financial flexibility as the repayments are only due from
2015. Origin has also announced a commitment to further sell down its equity
stake in APLNG to 30% (from 37.5%), to support its financial profile.
Origin's ratings are underpinned by its dominant market position across its
integrated generation and retail businesses and its upstream assets. It also
reflects a strong liquidity position through undrawn but committed credit
facilities and cash balances of AUD4.2bn as at 30 June 2012 and continued access
to domestic and offshore capital markets.
The Stable Outlook reflects Fitch's expectation that Origin can maintain a
credit profile appropriate for its current ratings over the medium term.
However, any material deviation in the final project equity structure and
related funding options or material increases in project costs of APLNG will
likely result in a negative rating action given Origin's limited headroom under
its current ratings on a projected basis till FY16.
Origin placed two hybrid issues of EUR500m and AUD900m respectively in 2011.
Under Fitch's hybrid criteria, the EUR hybrid has been assigned a 50% equity
credit till 16 June 2016 and the AUD hybrid a 50% equity credit till 22 December
What could trigger a rating action?
Positive: An upgrade is considered highly unlikely over the medium term. Fitch
expects a sizeable portion of additional revenue and cashflows from both organic
growth and acquired assets to be used to fund its future capex requirements, in
particular, the funding requirements associated with the APLNG project.
Negative: Future developments that may, individually or collectively, lead to
negative rating action include:
- forecast funds flow from operations (FFO) gross interest cover deteriorates to
below 4.5x (5.1x in FY12) and forecast FFO adjusted net leverage above 3.0x
(FY12: 2.2x), both on a sustained basis;
- In addition, in Fitch's view a temporary breach in Origin's forecast FFO
interest cover negative guideline during APLNG's construction phase in itself
would not lead to a negative rating action, provided adequate liquidity is