Xinhua Far East Places the AAA Domestic Currency Issuer Rating of CNOOC Ltd on Review for Possible Downgrade
June 23 2005 - 11:26AM
PR Newswire (US)
Xinhua Far East Places the AAA Domestic Currency Issuer Rating of
CNOOC Ltd on Review for Possible Downgrade HONG KONG, June 23
/Xinhua-PRNewswire/ -- Xinhua Far East China Credit Ratings today
placed the AAA domestic currency issuer credit rating of CNOOC Ltd
("CNOOC" or "the Company", HK 0883, NYSE: CEO) on review for
possible downgrade. The review was prompted by CNOOC's latest
proposal to merge with Unocal Corporation ("Unocal", NYSE: UCL) for
a cash consideration of USD 18.5 billion. According to Xinhua Far
East's estimates, the resulting capital structure and financial
profile of the combined CNOOC-Unocal entity can hardly maintain the
excellent position required for the AAA rating category.
Furthermore, such a huge-scale merger involving two similar-sized
companies with distinct backgrounds and cultures entails
considerable integration and execution risks, at least in the short
to medium term. Accordingly, Xinhua Far East believes that CNOOC's
credit profile will undergo a structural change that will no longer
makes it commensurate with the extremely high level of resilience
and resistance to volatility required in an AAA credit. Xinhua Far
East added that while there are still uncertainties and regulatory
barriers regarding a successful bid by CNOOC, this Company's merger
proposal reveals a change of management strategy that shows a
larger appetite and a higher tolerance for the risks in overseas
acquisitions. If the bid turns out to be unsuccessful, Xinhua Far
East anticipates that CNOOC will continue to seek other acquisition
opportunities to strengthen its oil and gas reserves and expand its
international operations. Thus, the potential structural impact of
large-scale acquisitions on CNOOC's AAA rating will linger. In
Xinhua Far East's opinion, under CNOOC's proposed financing plan,
CNOOC will turn from a net cash to a net debt position but
financial leverage will maintain at moderate level after the
merger. Depending on the outcome of the acquisition bridging loan
refinancing, Xinhua Far East estimates that CNOOC's resulting gross
debt (excluding subordinated debts provided by its parent company)
to total capital ratio will be around 20% - 30% upon close of the
merger. Xinhua Far East acknowledges that CNOOC has very strong
operating and financial profiles, competent management and a
prudent financial strategy. It is also bolstered by growing demand
and a supportive regulatory environment in its home market.
Moreover, given the Company's strategic position in China's energy
sector, we expect that its majority shareholder, China National
Offshore Oil Corporation, a wholly state-owned enterprise, will
continue to provide strong support in this and future acquisitions.
For instance, in the proposed USD 18.5 billion merger, China
National Offshore Oil Corporation is committed to providing a
subordinated long term loan of USD 4.5 billion and a bridging loan
of USD 2.5 billion. Further, the proposed merger will deliver
synergies and enhance stability of crude oil supply for CNOOC,
whose home market is experiencing vibrant growth in demand and net
depletion of crude oil reserves. In view of its expected very
strong credit profile and resilience post merger, even if the
proposed merger triggers a downgrade, CNOOC's rating will probably
stay at a AA level. During the review period, Xinhua Far East will
evaluate the impact on CNOOC and the progress of integration if the
proposed bid is successful. Otherwise, we will continue to monitor
CNOOC's strategy in implementing overseas acquisitions. CNOOC Ltd
is principally engaged in the exploration, development, production
and sale of crude oil and natural gas. It is the only company
permitted by the Chinese government to conduct oil and nature gas
exploration and production activities offshore China, either
independently or with international oil and gas companies through
production sharing contracts (PSC). As of year-end 2004, CNOOC Ltd
had net proved reserves of 2.23 billion barrels-of-oil equivalent
(BOE), namely 1.46 billion barrels of crude oil and 4.65 trillion
cubic feet of natural gas. Total net production in 2004 was 382,513
BOE per day. Oil and gas sales accounted for 66.8% of its total
revenue in 2004. The ultimate parent company of CNOOC Ltd is China
National Offshore Oil Corporation, which has 70.64% interest in the
Company. CNOOC is a red chip listed on Hong Kong Stock Exchange and
a constituent in the Xinhua/FTSE China 25 Index. As of June 23,
2005, the total market cap of CNOOC accounted for HKD174 billion
(USD22.3 billion) with an investable market cap of HKD25 billion
(USD 3.2 billion). For the rating report summary, please visit
http://www.xinhuafinance.com/creditrating. Chart 1: Operating
Profile of Unocal, Chevron, and CNOOC Ltd (2004) Unocal Chevron
CNOOC Total Proved Reserves (Million BOE) 1,754 11,252 2,230 % of
oil 37.6% 70.9% 65.3% % of natural gas 62.4% 29.1% 34.7% Total oil
& gas production (thousands BOE per day) 411 2,509 383 Total
assets (US$ million) 13,101 93,208 11,362 Total revenues (US$
million) 8,204 155,300 6,669 Net income (US$ million) 1,208 13,328
1,955 Capital Expenditure (US$ million) 1,744 6,310 2,250 Net
operating cash flow (US$ million) 2,556 14,690 2,697 More
Information: Hong Kong Joy Tsang, Corporate & Investor
Communications Manager, Xinhua Finance +852-3196-3983,
+852-9486-4364, US The Ruth Group (PR Contact in the US) Mr. Jason
Rando, +1 646 536 7025, Note to Editors: About Xinhua/FTSE China 25
Index Xinhua/FTSE China 25 Index is a real-time tradable index
designed for use as the basis for both on-exchange and OTC
derivative products, mutual funds and ETFs. The index includes the
largest 25 Chinese companies comprising H shares and Red Chip
shares, ranked by total market capitalization. The index is
designed to meet fund regulatory requirements worldwide, with
constituent weightings capped, in order to avoid over-concentration
in any one stock. About Xinhua Far East China Ratings Xinhua Far
East China Ratings (Xinhua Far East) is a pioneering venture in
China that aims to rank credit risks among corporations in China.
It is a strategic alliance between Xinhua Financial Network, a
Xinhua Finance subsidiary, and Shanghai Far East Credit Rating Co.,
Ltd. Shanghai Far East became a Xinhua Finance partner company in
2003 and the first China member of The Association of Credit Rating
Agencies in Asia in December 2003. Capitalizing on the synergy
between Xinhua Finance and Shanghai Far East, Xinhua Far East's
rating methodology and process blend unique local market knowledge
with international rating standards. Xinhua Far East is committed
to provide investors with independent, objective, timely and
forward-looking credit opinions on Chinese companies. It aims to
help investors differentiate the credit risks among the
corporations in China, thereby, cultivating their awareness and
promoting information disclosures and transparency in China market.
For more information, see http://www.xfn.com/creditrating. About
Xinhua Finance Limited Xinhua Finance Limited is China's premier
financial services and media company, listed on the Mothers board
of the Tokyo Stock Exchange (symbol: 9399). The Company provides
financial news and information, as well as a broad array of
financial products and services unique to the China markets. Xinhua
Finance provides real time coverage of Chinese and Asian equity
markets, delivering an integrated platform of China-specific
indices, financial news feeds, credit ratings, and investor
relations services to global financial institutions and
re-distributors via leased line, Internet, and satellite
technology. Founded in 1999, the Company is headquartered in Hong
Kong and has 16 offices and 22 news bureaus across Asia, Australia,
North America and Europe. For more information, see
http://www.xinhuafinance.com/. About Shanghai Far East Credit
Rating Co., Ltd Shanghai Far East Credit Rating Co., Ltd. is the
first and leading professional credit rating company with
comprehensive business coverage in China. It is an independent
agency established by the Shanghai Academy of Social Sciences with
the mission to develop internationally accepted standards for
capital market in China. The company is a pioneer in conducting
bond- rating business in China. For years, it has been authorized
by the Shanghai branch of the PBOC to undertake loan certificate
credit rating. Since establishment, it has rated over 1,000
corporate long-term bonds and commercial papers, based on the
principles of objectivity, fairness and independence. The company
has also maintained over 50% market share in the loan
certificate-rating sector in Shanghai for three consecutive years.
With its strong local presence and knowledge, it provides investors
with unique and the most insightful credit opinion. For more
information, see http://www.fareast-cr.com/. DATASOURCE: Xinhua Far
East China Credit Ratings CONTACT: Hong Kong - Joy Tsang, Corporate
& Investor Communications Manager, Xinhua Finance,
+852-3196-3983, +852-9486-4364, ; US - Mr. Jason Rando, of The Ruth
Group +1-646- 536-7025, Web site: http://www.xfn.com/creditrating
Copyright