Feb 27 - Repsol's sale of liquefied natural gas (LNG) assets
to Shell improves Repsol's credit metrics, but any positive rating action is
dependent on the post-tax asset disposal proceeds of approximately EUR2.7bn
being fully utilised to reduce financial indebtedness.
Repsol calculates the deal reduces net debt by more than half (excluding Gas
Natural Fenosa) to EUR2.2bn, significantly strengthening its balance sheet and
liquidity. However, in this particular case our focus is on gross debt, which
means that any rating action would come after the proceeds are actually received
- subject to regulatory approvals and other conditions precedent - and will have
been used to pay down debt rather than held on balance sheet or spent. Repsol
says it will use the proceeds to boost its upstream organic growth strategy.
Our Outlook on Repsol is likely to be revised to Positive upon the completion of
any significant disposal (receipt of cash and deconsolidation of associated debt
and operating leases), and upgraded to 'BBB' if proceeds are fully utilised for
debt reduction. This would be in line with our January rating commentary when we
changed Repsol's Outlook to Stable from Negative.
The impact on Shell is relatively small, and will not therefore affect its 'AA'
credit rating. Shell can easily fund the USD4.4bn cash portion from available
on-balance sheet funds of USD18.6bn at year-end 2012. The USD1.8bn balance sheet
liabilities, predominantly reflecting leases for LNG ship charters, will not
have a major impact on credit ratios.
Late yesterday, Repsol ('BBB-'/Stable) and Royal Dutch Shell ('AA'/Stable)
announced an agreement for the sale of Repsol's LNG assets for a total
consideration of USD6.7bn. This includes the minority stakes in Atlantic LNG
(Trinidad & Tobago), Peru LNG and Bahia de Bizkaia Electricidad (BBE), as well
as the LNG sale contracts and time charters with their associated loans and