Moody’s Investors Service downgraded Preem Holdings AB’s senior unsecured debt rating to B2 from Ba3 and its senior implied rating to Ba3 from Ba2. The rating action concludes the review initiated May 19, 2003. The rating outlook is stable.
Preem Holdings AB is the holding company of Preem Petroleum AB and a 100 percent subsidiary of Corral Petroleum Holdings AB, part of the Corral Group ultimately owned by the Saudi Arabian investor, Mohammed Hussein Ali Al-Amoudi. Preem, headquartered in Stockholm, is the largest oil refining company in Sweden.
Moody’s said that the downgrade reflects Preem’s deteriorated debt protection measures following the extremely weak refining market in 2002, and Moody’s expectation that future investment plans will likely be funded through additional debt, further exacerbating the company’s current highly leveraged financial profile.
The increased notching of the senior secured rating from the senior implied, from one to two notches, reflects the deterioration of the bondholders’ position as a result, in Moody’s opinion, of the company’s weakened asset coverage in the uncertain and difficult refining environment and the expectation that potential additional senior debt at operating company level will further subordinate the bondholders’ position.
The downgrade also reflects Moody’s opinion that the high refining margins registered in the first quarter of 2003 are unlikely to be sustainable over the medium term. A degree of volatility is encompassed in the new ratings, which also allow some flexibility for additional debt to support new investments.
While Moody’s expects that Preem’s future refining margins will benefit from the contribution of the new cracker unit to be installed at Scanraff refinery (upgrading a significant portion of the production from fuel oil to diesel), the investment of SEK 2,500 million (Preem’s share of the investment as per its 75% ownership in the refinery) will negatively impact the already leveraged company’s balance sheet.
Being an independent refiner, an adequate access to bank credit facilities remains crucial to Preem in order to satisfy its working capital needs. Moody’s takes comfort into the level of available headroom in the company’s credit facilities.
While these facilities are granted on an uncommitted basis, the rating agency believes that the over-collateralization taken by the relationship banks should allow them to continue supplying adequate funding to meet Preem’s working capital requirements.
Moody’s noted that these uncommitted facilities, which are rolled over on an annual basis, have been successfully renegotiated during a very difficult year. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
