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Fitch Ratings-Taipei/Sydney/Singapore-03 June 2009: Fitch Ratings has today affirmed the ratings of CPC Corporation, Taiwan (CPC) as follows:
Long-term foreign currency Issuer Default Rating (IDR) at 'A+' with a Stable Outlook, Short-term foreign currency IDR at 'F1', and Long-term local currency IDR at 'AA' with a Negative Outlook. At the same time, the agency has affirmed CPC's National Long-term rating at 'AAA(twn)' with a Stable Outlook, its National Short-term rating at 'F1+(twn)' and senior unsecured National ratings of its corporate bonds totalling TWD35.2bn at 'AAA(twn)'.
"The ratings reflect CPC's status as Taiwan's key public service vehicle to satisfy domestic demand for refined oil products and natural gas, and one of the two major suppliers of intermediate materials for the local petrochemical industry," said Simon Wong, Director in Fitch's Asia-Pacific energy and utilities team. CPC has the same ratings as the Taiwan sovereign under the agency's Parent and Subsidiary Rating Linkage Methodology, reflecting the strong legal, operational and strategic ties between the two.
"CPC is also the government's primary tool to stabilise domestic energy prices. The company reported a record pre-tax loss of TWD139.4bn for 2008 as a result of having to subsidise refined oil products during periods of volatile feedstock prices," added Mr. Wong. The Floating Pricing Mechanism (pricing mechanism) was suspended for refined products in December 2007 and reactivated on 28 May 2008. Despite this, CPC continued to subsidise domestic refined product prices, resulting in negative margins. Its domestic refined products market share increased to 83% during 2008 from 78% in 2007, and being the sole supplier of natural gas in Taiwan further increased its financial burden.
Fitch notes that CPC's 2008 credit metrics deteriorated substantially resulting from negative operating EBITDAR and funds from operations in addition to a significant capex burden. CPC's negative free cash flow widened to TWD140.4bn, leading to a significant increase in borrowings. Two thirds of FYE08 total debt is due to mature in 2009. However, Fitch notes CPC is expected to report a full year pre-tax profit for 2009 and its strong access to funding from local state-owned banks will support the company's liquidity despite the deterioration in credit metrics.
CPC's Outlooks reflect those on Taiwan's sovereign ratings. Although the company's stand-alone credit profile is unlikely to improve significantly due to a challenging operating environment and the ongoing largely debt funded capex program, Fitch does not anticipate that its links with the government of Taiwan will weaken; the agency believes that CPC, as the second largest corporation in Taiwan, will continue to be fully owned and benefit from very strong implied support from the government. Fitch's ratings have factored in a weak stand-alone financial profile; however, any sign of deterioration in implied state support is likely to affect the rating.
The company's capex plans for 2009 to 2012, totaling TWD144.9bn, include renovating refineries equipment and constructing its third naphtha cracking plant, expanding exploration and production activities and replacing a fleet of ageing oil transportation vessels.
Contacts: Simon Wong, Singapore, +65 6796 7235/
simon.wong@fitchratings.com; Kevin C. Chang, Taipei, +886 2 8175 7609/
kevin.chang@fitchratings.com.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(twn)' for National ratings in Taiwan. Specific letter grades are not therefore internationally comparable.
Media Relations: Lisa Lim, Singapore, Tel: +65 6796 7214,
Email:
lisa.lim@fitchratings.com.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
