Fitch changes MOL outlook to negative

Ratings

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Fitch Ratings on Wednesday affirmed Hungarian oil and gas company MOL's 'BBB-' credit rating but revised its outlook to negative from stable amid uncertainty as the European Union weans itself off Russian hydrocarbons, according to a report by state news wire MTI.

The revision of the outlook to negative "reflects the risks related to MOL's significant reliance on supplies of gas and oil from Russia", Fitch said.

"While Hungary is exempt from the EU ban on Russian oil supplies and we do not currently assume that natural gas flows from Russia will be halted, geopolitical tension in Europe remains high. While we believe that MOL has a number of levers to shield its financial profile from the negative consequences of a potential halt of hydrocarbon supplies from Russia, the associated market volatility and risks related to refinancing and ongoing operations are difficult to predict at present," it added.

Hungary's pipeline deliveries of crude through the Druzhba pipeline are exempt, for an indefinite period, from the EU's recently introduced ban on seaborne oil exported from Russia, and Fitch said a halt to oil supplies is "unlikely". Fitch noted that MOL estimates it would need to invest USD 500 million-700 mln over 2-4 years to refit its refineries for lighter types of crude.

Fitch said the impact on MOL of a government motor fuel price cap and the introduction of a windfall tax on refiners is "manageable", pointing to the benefit of the Urals-Brent spread on the company's profitability.

Fitch's baseline scenario assumes Russian gas exports to Hungary will continue, but the ratings agency said a halt in those flows would have a "sizeable impact" on the capacity utilization of MOL's downstream assets.

The agency said the outlook on the rating could return to stable if reliance on Russian oil and gas declines or risk to supplies being halted is "significantly reduced". An improved operational profile in MOL's upstream or petrochemicals businesses as well as a favorable resolution in the dispute with the Croatian government over MOL's stake in Croatian peer INA could also lead to a positive rating action, it added.

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