(The following was released by the rating agency)
-- We consider that Caltex's overall funding strategy for
its supply chain restructure would mitigate the project
execution risk, and is supportive of the company's "modest"
financial risk profile.
-- In addition, Caltex has raised A$550 million of hybrid
securities, which receives 50% equity credit from Standard &
-- As a result, we have affirmed the 'BBB+/A-2' corporate
credit rating on the company, 'BBB+' rating on the senior
unsecured debt , and 'BBB-' rating on the hybrid securities.
-- At the same time, we have removed the ratings from
CreditWatch with negative implications.
-- The stable outlook reflects our expectation that company
will exercise its financial levers--as seen in its track
record--should the operating environment be weaker than
On Sept. 25, 2012, Standard & Poor's Ratings Services
affirmed its 'BBB+/A-2' corporate credit rating on Caltex
Australia Ltd. We also affirmed our 'BBB+' rating on the
company's senior secured debts and 'BBB-' rating on Caltex's
hybrid securities. At the same time, we have removed all ratings
from CreditWatch with negative implications, where they were
placed on July 26, 2012. The outlook is stable.
The affirmation reflects our view that Caltex would maintain
its "modest" financial risk profile despite the increasing
funding requirements to close its Kurnell refinery and convert
it to a major import terminal. In addition to a recent issuance
of A$550 million hybrid securities (which receives 50% equity
credit from Standard & Poor's), the company also announced a
lower dividend payout range of 20% to 40%, from 40% to 60%
previously. This will preserve cash and boost its liquidity
during its supply chain restructure in the next few years.
Should the operating environment deteriorate, we also
believe that Caltex can reduce its discretionary capital
expenditure without materially affecting its earnings in the
near term. The company could defer its capital expenditure plans
such as its retail network expansion and site upgrade. In
addition, about half of the budgeted capital expenditure is
growth related, which could be postponed amid a tough trading
environment. Caltex's year-to-date refiner margin is slightly
better than expected, due to stable refinery operations without
unplanned outages and a higher Caltex refiner margin. We also
expect its marketing business earnings to continue to perform
strongly. As such, we expect Caltex's adjusted funds from
operations (FFO)/debt to be higher than 40% and adjusted debt to
EBITDA lower than 2x in 2012.
We continue to view Caltex's business risk profile as
"satisfactory", reflecting its strong market position in
downstream petroleum refining, distribution, and marketing. In
Australia, the company accounts for about a third of the
petroleum-product refining market. It also supplies more than
30% of the retail fuel market (including co-branded sites with
Woolworths Ltd. ) and the commercial diesel and
jet fuel market, leading its main competitors Shell Australia
Ltd., B.P. Australia Holdings Ltd., and 7-11. The increasing
earnings contribution from Caltex's nonrefining
business-including transport-fuel marketing, lubricants and
specialties, and non-fuel income-has increased the company's
cash flow diversity and stability. We believe this is
particularly important when selling petrol has low
profitability, especially during cyclical downturns.
However, Caltex remains exposed to asset-quality and
asset-concentration risk at its two refineries. The financial
and operational impact of recent stoppages highlights Caltex's
asset concentration, which remains a key credit sensitivity for
the 'BBB+' rating. Nonetheless, we consider that Caltex's
business risk profile would benefit from the restructure in the
long run. The anticipated favorable supply agreement with
Chevron Corp. (AA/Stable/A-1+) and the closure of the Kurnell
refinery would reduce Caltex's operating losses in its refinery
business and the volatility in its earnings and operations.
However, the company may face execution risks associated with
the restructuring in the near term.
In our view, Caltex's liquidity is "strong", based on our
criteria (see Methodology And Assumptions: Liquidity Descriptors
For Global Corporate Issuers, published to Global Credit Portal
on Sept. 28, 2011). Relevant aspects of our assessment of the
company's liquidity profile are:
-- We expect that Caltex's sources of liquidity in fiscal
2012 will exceed uses by 1.5x.
-- The company has no major debt maturing until April 2014.
-- As at June 30, 2012, Caltex had almost A$1.1 billion of
undrawn committed facilities. In addition, its cash holding will
increase significantly with the proceeds of the A$550 million
-- The company's policy is to maintain undrawn committed
facilities of at least A$350 million over its peak debt load,
given the volatile industry the company operates in.
The stable rating outlook is based on our view of the
strength of the company's marketing business. The outlook also
reflects Caltex's track record of maintaining a conservative
balance sheet, and our expectation that Caltex would utilize
financial levers (such as reducing discretionary capital
expenditure and dividend payments) to manage leverage and
cash-flow-protection metrics should the operating environment
deteriorate. We believe the potential execution risk associated
with the company's supply chain restructure underpins the
importance of the company maintaining conservative financial
metrics and a flexible approach to capital management.
The rating could come under negative pressure if Caltex's
FFO-to-debt ratio falls to less than 40% and its debt-to-EBITDA
ratio moved to higher than 2x. Negative free-operating cash flow
would also be negative for the rating. Caltex remains exposed to
significant asset-concentration and operational risks that could
pressure the ratings should a material deterioration in
operating reliability occur.
In our opinion, a higher rating is less likely in the near
term until Caltex completes the restructure of its supply chain
and moderates its earnings volatility. We would also need to
consider the company's potential capital restructure under the
new business structure.
Related Criteria And Research
-- Methodology And Assumptions: Liquidity Descriptors For
Global Corporate Issuers, Sept. 28, 2011
-- 2008 Corporate Criteria: Analytical Methodology, April
Ratings Affirmed; CreditWatch/Outlook Action
Caltex Australia Ltd.
Corporate Credit Rating BBB+/Stable/A-2 BBB+/Watch Neg/A-2
Caltex Australia Ltd.
Senior Unsecured BBB+ BBB+/Watch Neg
Subordinated BBB- BBB-/Watch Neg