CHICAGO--(BUSINESS WIRE)--Fitch Ratings expects to rate Petroleos de Venezuela, SA's (PDVSA) proposed USD2.4 billion senior unsecured debt issuance due 2021 'B+/RR4'. The company expects to use the proceeds to pay down approximately USD1.3 billion of notes outstanding due 2013 and the balance for general corporate purposes.
PDVSA's credit quality reflects the company's linkage to the government of Venezuela as a state-owned entity, combined with increased government control over business strategies and internal resources. This underscores the close link between the company's credit profile and that of the sovereign. PDVSA's ratings also consider the company's strong balance sheet; sizeable proven hydrocarbon reserves; strategic interests in international downstream assets; private participation in upstream operations; and geographic proximity to the North American market.
RATINGS LINKED TO GOVERNMENT:
PDVSA is a state-owned entity whose royalties and tax payments represent more than 50% of the government's revenues, and it is of strategic importance to the economic and social policies of the country. Over the past five years, PDVSA's total transfers to the government have averaged approximately 35% of revenues. Also, the government has used PDVSA's balance sheet to promote various government initiatives. In 2008, the government changed PDVSA's charter and mission statement to allow it to participate in industries that contribute to the country's social development, including health care, education, and agriculture.
STRONG CREDIT METRICS:
PDVSA continues to be an important player in the global energy sector. The company's competitive position is strong and supported by its sizeable proven hydrocarbon reserves, strategic interests in international downstream assets, private participation in upstream operations, and geographic proximity to the North American market. The company also benefits from a strong balance sheet, which is in line with its competitors. PDVSA's ratings are tempered by its stated-owned nature and linkage to government.
For the last 12 months ended June 30, 2011, PDVSA reported EBITDA (after royalties and social expenditure) and funds from operations (FFO) of approximately USD32.1 billion and USD12.6 billion, respectively. Total financial debt as of June 30, 2011 increased to USD31.2 billion from USD24.9 billion as of 2010. The leverage level remains strong for the rating category with a total adjusted-debt-to-EBITDA ratio of 1.2 times (x). Capital expenditures remain high, amounting to approximately USD65 billion over the past five and a half years.
Going forward, the company's credit metrics could be pressured by aggressive capital investments to increase production coupled with considerable transfers to the central government. PDVSA is expected to invest more than USD200 billion over the next four to five years to increase production, refining capacity and develop reserves. This will require issuing additional debt given the long lead times before additional production starts coming online. Additional funds could also come from joint ventures. PDVSA's total financial debt-to-EBITDA could range between 2.0x and 2.5x in the long term depending on prevailing hydrocarbon price and production levels.
LARGE HYDROCARBON RESERVES:
Hydrocarbon reserves in the country continue to increase, with proved hydrocarbon reserves of 330.1 billion barrels of oil equivalent (boe) (approximately 89% oil and 11% natural gas) and proved developed hydrocarbon reserves of 20.5 billion boe as of December 2010. Venezuela's reported oil production has remained relatively stable during the past four years at approximately 3 million barrels per day (bpd) despite USD65.5 billion of upstream investments during the past five years, which has helped offset declining production rates.
Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug 12, 2011);
--'Parent and Subsidiary Rating Linkage' (Aug 12, 2011).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Parent and Subsidiary Rating Linkage