RPT-Fitch Upgrades Repsol SA to 'BBB'; Outlook Positive
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May 15 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has upgraded Repsol SA's Long-term Issuer Default Rating (IDR) to 'BBB' from 'BBB-'. The Outlook is Positive. A full list of rating actions is provided below.
The upgrade reflects the successful monetisation of nearly all of the USD5.32bn in nominal value of guaranteed Argentine government bonds Repsol received as compensation for the expropriation of 51% of its former subsidiary YPF (B-/Negative) and YPF Gas and the receipt of USD1.3bn of proceeds from the sale of Repsol's remaining minority stake in YPF. Repsol's total cash proceeds received from the combined transactions are USD6.1bn, exceeding Fitch's rating guideline for an upgrade of monetising at least USD3bn of its guaranteed Argentine government bonds. The sale of those bonds, in addition to the sale of the YPF minority stake, is the main factor supporting today's upgrade.
The Positive Outlook reflects Fitch's expectations that Repsol will improve its upstream business profile with the completion of key projects over the next two years and maintain high operating efficiency. Repsol's 2013 upstream growth rate, excluding equity affiliates, exceeded all European peers rated by Fitch. A further upgrade to 'BBB+', however, will likely depend on the exact use of the Argentine proceeds - whether to fund acquisitions, make capital investments or reduce on-balance sheet debt. The most likely scenario for a return to 'BBB+' is, in our opinion, a use of the Argentinian proceeds to restore the company's upstream profile to a similar level to that before the YPF appropriation, while maintaining conservative financial metrics and a steady performance from downstream.
KEY RATING DRIVERS
Ambitious Upstream Plan
Repsol expects increasing oil production to 500 thousand barrels of oil equivalent per day (mboepd) by 2016. In 2013 Repsol achieved average annual net production growth of 4.2%. This was due to the start-up of five of its 10 key projects, partly offset by production volatility in Libya. Although the company's target of consistently greater than 7% compound annual growth a year for its upstream production is achievable over the next few years, Fitch nevertheless regards it as ambitious given that most of the integrated oil and gas companies are struggling just to maintain flat production growth rates. Continuación...