May 2015 Financial News

Moody’s downgrades Petrotrin, NGC and THA

May 06, 2015

Just days after downgrading T&T’s bond and issue rating and changing the country’s outlook from stable to negative, Moody’s Investors Service has issued the same assessments for state-owned Petrotrin, the National Gas Company (NGC) and the Tobago House of Assembly (THA). In all three cases, Moody’s said the ratings were driven by the strong linkages these entities have with T&T.

In the case of Petrotrin, Moody’s downgraded is senior unsecured debt ratings, including the energy company’s corporate family rating, to Ba1 from Baa3. However, its b1 baseline credit assessment remained unchanged, although outlook on the ratings was changed to negative from stable. 

The ratings agency noted Petrotrin’s high dependence on the T&T government, its sole shareholder. It estimated that more than 40 per cent of the country’s GDP depends on the oil and gas industry, “which has suffered from and will continue to be sensitive to lower international prices as well as the country’s limited reserves.”

Other factors influencing the company’s downgrade were its weak operating and credit metrics, which are somewhat offset by its key function as the sole refinery in the country and a significant employer.

Moody's said the creditworthiness of the company is highly dependent on the credit quality of the government.

“The successful increase in refinery utilization rates and growth in its oil production, in tandem with materially reduced financial leverage (debt/capitalization sustained at less than 40 per cent) could be positive for Petrotrin's Ba1 ratings and b1 BCA,” the agency said.

“However, if Petrotrin experiences protracted refinery downtime or weak liquidity, its ratings could come under pressure. In addition, the Ba1 ratings could be downgraded as a result of a decreased likelihood that Trinidad and Tobago's government would provide extraordinary support to Petrotrin, or as a result of a downgrade of the government's Baa2 rating.” 

Moody's said NGC's Baa2 rating and ba1 BCA reflect the company's role as the sole purchaser, transporter, and distributor of natural gas to the domestic natural gas-based energy sector and the designated agent of the government to promote and facilitate natural gas-based investment in the country and national development. 

“We estimate that, in 2013, NGC represented over 10 per cent of Trinidad and Tobago's GDP. The high level of dependence on credit factors that could cause stress to both the government and the company simultaneously hinders the government's ability to provide support to NGC,” the agency said.

However, an upgrade of the government’s Baa2 rating could provide a lift to the NGC’s rating. 

The report on NGC continued: “Conversely, negative rating pressures could result from materially weakened margin or cash flow performance, greater government interference via increased taxation or dividends, or diverting the company away from its core gas pipeline operations into social welfare work programmes, including the extension of special credit terms to less profitable state entities. 

“NGC's Baa2 rating could also be pressured by a deterioration in the Trinidad and Tobago government’s willingness or ability to provide credit support to the company in a distress situation or a change in inferred levels of dependence.”

Moody’s said 98.7 per cent of the THA's revenues come from the central government and it requires approval to contract financial long-term debt, which ensures a strong level of oversight. 

“Given the institutional framework constraints, THA's financial performance is relatively strong. THA's gross operating balance averaged 11.3 per cent of operating revenues over 2010-2014, which provides adequate funding to capital projects. Cash financing surpluses have been roughly balanced at 0.7 per cent of total revenues over the same period,” the agency said.

“Currently, THA's only long term obligation consists of a P3 project contracted in 2012. As Moody's considers the P3 contract as a debt-like obligation, THA's net direct and indirect debt measured 9.8 per cent of total revenues at the end of 2014. With no expectations of further debt, Moody's expects the debt to revenue level to decrease in the near future.

“As a result of its balanced cash financing results, THA's net working capital (measured as current assets minus current liabilities) averaged 16.9 per cent between 2010 and 2014, a solid level and one of THA's main credit strengths. High net working capital levels allow THA to absorb potential external shocks.”

Moody’s said the THA’s creditworthiness is tied to T&T so further downgrade of the country’s rating could also exert downward pressure on the THA’s rating.

Source:
Suzanne Sheppard
Trinidad Guardian 
Wednesday May 6, 2015

http://www.guardian.co.tt/business/2015-05-06/moody%E2%80%99s-downgrades-petrotrin-ngc-and-tha