CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Petroleos de Venezuela S.A.'s (PDVSA) 'B+' foreign and local currency Issuer Default Ratings (IDRs) and its 'AAA(ven)' national scale rating. This rating action affect approximately USD17 billion of debt outstanding. Additionally, Fitch expects to rate PDVSA's proposed USD3 billion senior unsecured debt issuance due 2020, 2021 and 2022 'B+/RR4'.
The Rating Outlook is Stable.
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 nationalize electricity companies and acquire industrial companies. During 2008, the government also took the additional step of changing PDVSA's charter and mission statement to allow it to participate in any industry that could contribute to the social development of the country, including health care, education, and agriculture.
STRONG CREDIT METRICS:
PDVSA's cash generation declined during 2009 due to lower hydrocarbon prices, later recovering during 2010. As of the last 12 months ended June 30, 2010, the company reported an EBITDA and funds from operations (FFO) of approximately USD24.7 billion and USD17.5 billion, respectively, up from USD12.7 billion and USD11.3 billion during 2009. Total financial debt as of June 30, 2010 increased to USD21.9 billion from USD15.1 billion as of 2008 as a result of debt issuance during 2009. The company's leverage ratios remain strong for the rating category with a total debt-to-EBITDA ratio of 0.9 times (x) and a total adjusted debt-to-EBITDAR ratio of 1.4x. The total adjusted debt-to-proved developed producing (PDP) reserves ratio was also strong at 1.7x as of June 2010. Despite lower cash flow generation, capital expenditures remained high at USD15.3 billion during 2009; however, PDVSA's total contributions to the government during 2009 significantly declined to USD24.2 billion from USD47.9 billion in 2008.
Going forward, the company's credit metrics could be pressured by aggressive capital investments to increase production coupled with considerable transfers to central government. PDVSA is expected to invest more than USD200 billion over the next four to five years to increase production, refinancing capacity and develop reserves. This will require issuing additional debt given the long lead times before additional production start 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 242 billion barrels of oil equivalent (boe; approximately 85% oil and 15% natural gas) and proved developed hydrocarbon reserves of 21 billion boe as of December 2009. Since the strike at the end of 2002, reporting disclosures and corporate communications have improved and are now more consistent with pre-strike levels. Venezuela's reported oil production has remained relatively stable during the past four years at approximately 3 million barrels per day (bpd; 3.7 boed including natural gas production) despite USD57.7 billion of upstream investments during the past five years, which has helped offset decline rates.
PDVSA is Venezuela's national oil company, with reported oil production of 3.7 million boed, refining capacity of 3.03 million bpd, proved hydrocarbon reserves of 242 million boe (85% oil and 15% natural gas) and proved developed hydrocarbon reserves of 21 million boe as of December 2009.
Fitch has affirmed the following ratings:
--Foreign currency Issuer Default Rating (IDR) at 'B+';
--Local currency IDR at 'B+';
--USD3 billion senior notes (due 2017) at 'B+/RR4';
--USD3 billion zero coupon notes (due 2011) at 'B+/RR4';
--USD618 million senior notes (due 2013) at 'B+/RR4';
--USD1.3 billion senior notes (due 2014) at 'B+/RR4';
--USD1.3 billion senior notes (due 2015) at 'B+/RR4';
--USD400 million senior notes (due 2016) at 'B+/RR4';
--USD3 billion senior notes (due 2017) at 'B+/RR4';
--USD3 billion senior notes (due 2027) at 'B+/RR4';
--USD1.5 billion senior notes (due 2037) at 'B+/RR4';
--Long-term national scale rating at 'AAA(ven)'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug 16, 2010);
--'Oil and Gas Sector Exploration and Production Rating Methodology' (Oct. 16, 2008);
--'Rating of Public Sector Entities' (Feb. 1, 2007);
--'Parent and Subsidiary Linkage Criteria Report' (June 17, 2007).
Applicable Criteria and Related Research:
Parent and Subsidiary Rating Linkage Criteria Report
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=534826
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=546646
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