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Moodyʼs assigns Baa3 issuer rating to MOL, stable outlook

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Moodyʼs Investors Service has assigned a first-time Baa3 issuer rating to Hungarian oil and gas company MOL, with the outlook stable, according to a press statement sent to the Budapest Business Journal over the weekend.

Concurrently, Moodyʼs has assigned a Baa3 rating to MOLʼs EUR 750 million senior unsecured notes due 2023, a (P)Baa3 rating to its USD 1 billion Euro Medium-Term Note Program, and a Baa3 rating to the USD 500 mln senior unsecured notes due 2019, both issued by MOL Group Finance SA, the statement said. The outlook on all ratings is stable.

“Our assignment of a Baa3 rating to MOL balances its robust financial profile supported by solid liquidity, and market-leading position in Central and Eastern Europe in its oil refining and marketing business, against its lack of geographic diversification and small scale relative to its European peers in the upstream segment,” said Shruti Kulkarni, an analyst at Moodyʼs.

Moodyʼs claims the stable outlook reflects its expectation that the company will be able to maintain its strong financial profile despite normalization of the margins in the downstream sector. The outlook also reflects positive free cash flow (FCF) generation in the coming years 2017-19 and a strong liquidity profile.

According to the press statement, the Moody’s assessments were made based on the following factors:

(1) strong financial profile, with gross adjusted debt/EBITDA of 1.5x in 2016 expected to remain in the 1.5x-1.7x range with positive FCF generation of around USD 150-200 mln in 2017-18, despite normalization of margins in the downstream segment from its peak in 2015;

(2) strong liquidity profile, with a cash balance of USD 740 mln in 2016 and USD 3.1 bln available under its revolving credit facilities; 

(3) strong oil refining and marketing presence in the CEE region, with leading positions in its respective markets;

(4) two high-quality refineries with above-average complexities that enable MOL to process sour crude into high-margin refined products; 

(5) integrated business profile, with a downstream business as well as upstream activities that provide resilience to the group in the current low oil price environment; and 

(6) downstream integration into retail and petrochemicals, which serves as an important sales channel for refined products and stabilizes the more volatile refining business.

Favorable outlook

“Looking ahead, Moodyʼs expects that MOLʼs refining margins will normalize from their peak of USD 6.1/bbl in 2015 and assume margins of around USD 5-5.5/bbl and an oil price of USD 40-60/bbl in 2017-19,” said the press statement. “MOL is expected to maintain its strong financial performance with adjusted EBITDA in the range of USD 2-2.2 bln, with a 60-65% contribution from its downstream segment. MOL should be able to generate positive FCF of around USD 150-200 mln in 2017-19 after capex and dividend payments of USD 1.5-1.6 bln and USD 200-250 mln, respectively. Moodyʼs expects that MOLʼs adjusted gross debt/EBITDA ratio will remain in the range of 1.5x-1.7x in 2017-19,” the press statement added.

According to Hungarian news agency MTI, in a statement issued by MOL late Friday, CFO József Simola said the company was “very pleased” with the investment grade rating, adding that it “confirms our resilient integrated business model and strong financial profile.” He added that MOL would “continue to build on our existing strengths through the combination of our high-quality low-cost asset base and systematic efficiency drive [...] whilst maintaining a robust balance sheet and strong liquidity position.”

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