The revision of the outlook primarily reflects the outcome of the legal proceedings brought by the Romanian government against Rompetrol Rafinare (RRC.RO) in respect to the bond-to-equity conversion undertaken in September 2010 and the ongoing support provided by the KazMunaiGaz, Fitch said in a statement.
In 2011, the Romanian court issued several rulings dismissing the Romanian government’s claims to annul the bond-to-equity swap. These rulings have been further challenged or appealed by the government, but the legal proceeding has been suspended in May 2012 allowing up to six months for negotiations between the government and TRG, Fitch noted.
The agency also considers in its analysis a scenario in which TRG would be obliged to repurchase the government’s 44.7% in Rompetrol Rafinare. However, Fitch notes that in light of the historical support provided by KazMunaiGaz, it is likely that TRG would receive further financial support from its parent to finance such a transaction, which would have a neutral impact on Rompetrol’s rating at its current level.
“TRG’s rating is based on a bottom-up approach in line with Fitch’s parent and subsidiary rating linkage methodology. The rating reflects the company’s standalone credit profile, assessed at ‘CCC’, and a three-notch uplift for parental support from KazMunaiGaz.”
The Kazakh company, which has been Rompetrol’s sole shareholder since July 2009, provided substantial support to TRG, including a guarantee to a $200-million syndicated five-year loan signed in February 2012, a $1.1 billion cash injection as a capital increase, and subordinated shareholder loans (outstanding balance of $896 million at end-2011), according to Fitch.
The agency noted that TRG’s free cash flow remained negative in 2011 as a result of low refining margins and capex spending related primarily to the upgrade of the Petromidia refinery. “Conditions for the refining sector in Europe remain challenging. TRG’s leverage is significantly higher than its rated peers,” Fitch said.
Short-term debt at the end of 2011 amounted to $490.7 million against a cash balance of $198.6 million. Fitch expects TRG will generate negative free cash flow this year, as well, but liquidity in 2012 will be supported by the currently unutilised $200 million syndicated loan. Fitch also assumes the company will be able to extend maturities of the short-term working capital loans falling due in 2012.