Fitch Ratings has affirmed the Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDRs) on
The Outlooks on the IDRs are Stable. At the same time, Fitch has affirmed the senior unsecured rating and the rating on all outstanding bonds at 'A+' and
CNPC is wholly owned by
We use a consolidated approach to rate CNPC's 83.62%-owned subsidiary
Key Rating Drivers
'Very Strong' State Linkages: Fitch assesses CNPC's status, ownership and control as 'Very Strong', with the state having firm control over its board and management and strong influence over its operations and strategy in light of the group's strategic importance to national energy security. It is one of
'Very Strong' Impact of Default: The socio-political impact of a default is assessed as 'Very Strong'. CNPC plays vital roles in energy security, accounting for about 52% of total crude oil and 66% of natural gas output domestically, and in implementing
Integrated Model Smooths Profit Volatility: CNPC's integrated business model enables smoothing of price-driven profit fluctuations between upstream and downstream operations over the commodity-price cycle. Fitch expects strong performance from the upstream segment, driven by both volume and realised price growth, to help offset weaker downstream performance in 2022.
Downstream Absorbs Higher Import Costs: CNPC's downstream refining margins would contract on the inability to fully pass through higher crude costs under the current pricing mechanism in addition to slower product demand growth yoy. Profitability of its natural gas sales would also decline. We think it is unlikely to fully pass through the steep rise in gas import costs in 2022 due to weaker consumption year to date and the company's role in providing affordable gas to residential users.
Further Deleveraging Ahead: We expect CNPC's EBITDA net leverage to drop to an average of 0.3x in the medium term from 0.7x in 2021 on our forecast of almost 30% yoy EBITDA growth in 2022 and stable budgeted capex. It will also maintain solid EBITDA interest coverage of more than 20x. CNPC's strong financials and its large integrated business scale support its 'aa-' SCP profile.
Low Capex for New Energy: Fitch expects CNPC's capex to stay stable in 2022 with most of it allocated to the company's upstream segment, followed by the downstream business. Capex for decarbonisation efforts, including the new energy business and technological investments, would increase from a low base, although their share of total capex will remain at single digits over the next two-three years.
Consolidated Approach for
There is no covenanted or regulatory ring-fencing mechanism to limit the parent's access to
Derivation Summary
CNPC's 'Very Strong' assessment for the status, ownership and control factor is similar to that for
The socio-political impact of a default is also assessed as 'Strong' for SGCC because the company is responsible for settling payments to power generators and a default would disrupt power supply, affecting 88% of the Chinese population. However, we think a default by CNPC would impair its ability to procure crude and gas to satisfy domestic demand. The financial impact of a default is assessed as 'Very Strong' for CNPC, SGCC and
Key Assumptions
Fitch's Key Assumptions Within Our Rating Case for the Issuer
Fitch oil price deck:
Flat-to-low-single-digit oil production growth; mid-single-digit gas production growth over the medium term
Crude processing volume growth to stay at around low-to-mid single digits over the medium term
Domestic gas sales volume growth at around mid-single digits over the medium term
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive action on the sovereign, provided the likelihood of sovereign support remains intact.
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on the sovereign
Ratings on
For the rating on
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Structural Features: A continued rise in macro-financial risks, for example through failure to maintain credit growth at a level close to nominal GDP growth over the next few years.
Public Finances: A sharp upward trend in government debt/GDP or a crystallisation of contingent liabilities that leads to a significant rise in government debt relative to 'A' peers.
External Finances: Sustained capital outflows sufficient to erode
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Structural Features: A material reduction in macro-financial risks and associated contingent liabilities facing the sovereign, for example, by maintaining credit growth below nominal GDP growth over a multi-year period, which would cause the removal of the -1 QO notch on Structural Features.
External Finances: Widespread adoption of the Chinese yuan as a reserve currency, as reflected in a substantial increase in the share of yuan-denominated claims in the
Best/Worst Case Rating Scenario
International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
Liquidity and Debt Structure
Comfortable Liquidity, Strong Flexibility: Fitch regards CNPC as a proxy borrower of the state. The company has maintained a high level of unencumbered assets, strong access to domestic banks, and listed platforms among its subsidiaries (including
Issuer Profile
CNPC is a national oil company whose operations cover the entire oil and gas value chain from upstream exploration and production to downstream refining, petrochemicals and marketing. It is also the largest gas producer and wholesaler in
Summary of Financial Adjustments
For CNPC's financial institution operations, we have treated deposits at banks and other financial institutions as cash, as they are quite liquid and short-term in nature, while we treat borrowings from banks and other financial institutions as borrowings.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
CNPC's rating is capped by
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
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