S&P also raised its issue rating on MOLʼs senior unsecured bonds from ʼBB+ʼ to ʼBBB-ʼ.
The upgrade is primarily based on the improvement in MOLʼs current and forecast credit metrics, “thanks to the companyʼs strong performance and supportive industry conditions,” S&P said. It forecast MOL would maintain a ratio of funds from operations to debt of at least 60% on average over the coming three years.
MOLʼs integrated business allowed the company to generate “meaningfully positive” free cash flow in 2016, despite weak oil prices and lower refining margins, S&P noted.
“The company also delivered on its cost-optimization program, which we believe brings sustainable benefits for profitability, and increased the share of less volatile retail and petrochemicals segments,” it added.
As a result, S&P projected MOLʼs EBITDA would “rise slightly,” even if refining margins remain flat, and put the companyʼs positive free cash flow generation at “at least HUF 100 billion” in 2017 and 2018.
“This distinguishes MOL from the majority of its larger peers, which continue to struggle with covering dividends and capital expenditures with operating cash flows,” S&P said.
S&P observed that it could lower the rating on MOL if its performance weakened on a decline in refining and petrochemical margins, or if the companyʼs debt were to increase because of acquisitions or financial policy decisions. A resolution to the conflict over MOLʼs Croatian unit INA that is unfavorable for MOL, such as asset expropriation, could also lead to a downgrade, it added.
A “material improvement” in MOLʼs business, notably on the upstream side, paired with a strong balance sheet, could lead to a further upgrade, S&P noted.
MOL acknowledged the upgrade in a separate statement posted on the website of the Budapest Stock Exchange late Wednesday.
“We are delighted by the upgrade of S&P, which means MOL also joins the illustrious club of fully investment-grade issuers, yet another reflection of our resilient integrated business model and financial strength,” said MOL CFO József Simola.
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