Rating Action: Moody’s affirms Kunlun Energy’s A2 ratings; outlook stable
Global Credit Research – 24 Dec 2020
Hong Kong, December 24, 2020 — Moody’s Investors Service has affirmed Kunlun Energy Company Limited’s (Kunlun) A2 issuer rating and senior unsecured debt rating.
The rating outlook remains stable.
Moody’s rating action follows an announcement on 22 December 2020 where the company has entered into an agreement to dispose its 60% equity stake in PetroChina Beijing Pipeline Co., Ltd (Beijing Pipeline) and 75% equity stake in PetroChina Dalian LNG Co., Ltd. (Dalian LNG).
RATINGS RATIONALE
“The proposed disposals, if materialized, will weaken Kunlun’s financial position and business profile, but its pro-forma credit metrics will be manageable within its rating,” says Boris Kan, a Moody’s Vice President and Senior Credit Officer.
“We understand that the company will focus on downstream city gas operations in China following completion of the proposed disposal and will continue to have high strategic importance to its state-owned parent,” adds Kan.
On 22 December 2020, Kunlun announced that it has entered into an agreement with China Oil & Gas Pipeline Network Corporation (PipeChina, not rated). Under the agreement, Kunlun will sell to PipeChina its 60% stake in Beijing Pipeline and 75% stake in Dalian LNG at a total consideration of about RMB 40.9 billion, to be settled in full by cash.
Kunlun also announced that about 50% of the net proceeds from the disposal will be used for dividend distributions to shareholders; about 40% will be used for developing downstream city gas business, and about 10% will be used for repayment of existing debts.
Beijing Pipeline owns and operates the Shaanxi-Beijing Pipelines, which are one of the nation’s major midstream transmission pipelines that transmit natural gas from Shaanxi Province to Beijing. Dalian LNG owns and operates the Dalian liquefied natural gas (LNG) terminal.
PipeChina is the state-owned national pipeline company established by the Chinese government in December 2019 to form a unified national oil and gas pipeline network in the nation.
Moody’s believes that the proposed transaction, if materialized, will weaken Kunlun’s financial position. Such a view is based on the fact that about half of the net proceeds from the disposal will be distributed to shareholders as dividends, and that company will lose cash flows from Beijing Pipeline and Dalian LNG. These two entities accounted for about 47% of the company’s reported pre-tax profits in 2019. The company’s financial position will also depend on the level of capital spending following the transaction.
At the same time, Kunlun’s business profile in the natural gas sector will weaken after the completion of the transaction. Such a view is based on the fact that the Shaanxi-Beijing Pipelines are one of the major transmission pipelines in the…
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