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RTNominal up3.140 +0.050 (+1.618%)

27/07/2020 17:37

Pipeline disposal eases China national oil firms' debt - S&P

[ET Net News Agency, 27 July 2020] S&P Global Ratings today said that the credit metrics
of China National Petroleum Corp. (CNPC, A+/Stable/--) and China Petrochemical Corp.
(Sinopec, A+/Stable/A-1)(00386) will improve slightly on the transfer of their pipeline
and other ancillary assets to China Oil & Gas Pipeline Network Corp. (PipeChina).
Despite the loss of more stable operating cash flow from the pipeline businesses, CNPC
and Sinopec should benefit from deconsolidating debt and reducing capital expenditure
(capex) associated with pipeline assets.
The gain on the asset transfer should also help their 2020 results, which will suffer
under plummeting oil prices. CNPC remains a dominant natural gas producer in China
although its level of integration weakens a little without the pipelines, the credit
rating agency said.
S&P estimated the debt-to-EBITDA ratios of CNPC and Sinopec will decrease by 0.1x and
0.2x, respectively, post the asset transfer based on 2019 financial results. It estimated
that CNPC's and Sinopec's EBIDTA will fall by RMB49.9 billion and RMB7.9 billion,
respectively, and their interest-bearing debt will fall by RMB19 billion and RMB33
At the same time, CNPC and Sinopec will receive RMB119 billion and RMB53 billion in cash
proceeds, respectively. CNPC and Sinopec will own 29.9% and 14.0% in PipeChina after the
transactions. CNPC will equity account for its stake and Sinopec will treat it as a
financial investment.
The transfer of pipeline assets under Kunlun Energy Co. Ltd. (00135), a non-fully owned
subsidiary of CNPC, is still under negotiation. The assets primarily consist of the
Shaanxi-Beijing pipelines, which reported RMB10.5 billion in revenue, RMB5.7 billion in
profit before tax, and RMB44.6 billion in total assets in 2019. These accounted for 0.4%,
4.7%, and 1.1% of these metrics for CNPC, respectively. Therefore the marginal impact from
further disposal of assets under Kunlun Energy will be less significant.
China National Offshore Oil Corp. (CNOOC) will also transfer its related assets to
PipeChina but the asset size is much smaller. S&P estimated the value would be RMB1.5
billion based on its 2.9% stake in PipeChina assuming no cash proceeds, or RMB2.6 billion
if we assume the stake in PipeChina accounts for 56% of the total consideration, similar
to that of CNPC and Sinopec. In either case, the asset value accounted for less than 1% of
CNOOC's total assets in 2019. (KL)

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