Polski Koncern Naftowy ORLEN S.A. ("PKN ORLEN", “Company”), informs that, on 2 March 2009 Fitch Ratings (“Agency”) has downgraded PKN ORLEN's long-term international credit rating from “BBB-/negative outlook (Rating Watch Negative) “ to „BB+ (Rating Watch Negative)”. The Agency also downgraded PKN ORLEN’s short-term rating from “F3” to „B”.
Fitch Ratings justifies the change of rating for PKN ORLEN by the increase in the Company’s net debt according to the recently published unaudited financial results of PKN ORLEN for the fourth quarter 2008. The agency also downgraded the rating for the Company due to the sizeable, in the Agency’s opinion, capex programme for 2009-2013 , ahead of expected weakening of market conditions in the refining and petrochemical sector. Additionally the Agency decided to maintain the rating watch due to the fact that the Company broke financial covenants included in PKN ORLEN’s major bank loan agreements as of 31 December 2008.
The contractually-provided level of debt is mainly exceeded because of the impact of the one-off, non-cash accounting effects related to the valuation of inventories (following the decline in prices of crude and refinery products), as well as the revaluation of loans denominated in foreign currencies due to the weakening of the zloty. The loan agreements between PKN ORLEN and the banks contain provisions specifying the required Net debt/EBITDA ratio. Breach of the terms and provisions of the loan agreements, if confirmed by the audited annual financial statements for 2008, may result in limiting the absolute availability of loans.
At the beginning of February 2009 PKN ORLEN started discussions with the lenders who are parties to the above-mentioned agreements on the conditions for continuing the financing. Currently the discussions are pending and none of the loan agreements containing provisions specifying the required level of consolidated debt was declared due and payable. PKN ORLEN was not in default with the repayment of principal or interest under loans or borrowings. Fitch Ratings agency expects that when PKN ORLEN makes the successful arrangements with banks on further cooperation, the rating may be confirmed at the level “BB+”, according to which the current Company’s debt level is granted as save.
The aim of PKN ORLEN’s Management Board is the fastest return to the investment rating.
At the moment PKN ORLEN’s Management Board does not find any danger for stability and financial liquidity of the Company. The Management Board highlights, that despite difficult situation on the global markets in the second half of 2008, PKN ORLEN achieved good operating efficiency ratios in 2008 – increase of Company’s revenues by 25% in the comparison to 2007, increase of retail sale (13%) and wholesale (22%). Additionally the Company results according to LIFO inventory valuation method (reflecting real efficiency of the Company’s operations) for the fourth quarter and for the full year 2008 are decidedly better – in comparison to 2007 EBITDA ratio for 2008 increased by 32%, from PLN 3.86 billion to PLN 5.09 billion and EBIT for 2008 was higher by 81% in comparison to 2007 and amounted to PLN 2.6 billlion. Cash from operating activity increased by over PLN 1.6 billlion in 2008 versus 2007.
In the last year approved strategy, PKN ORLEN’s Management Board indicated efficiency improvement as one of the main pillars of operating. The worsening of situation in global markets observed during the last months intensify the determination of the Management Board to continue these works to assure financial stability of the Company and solid founds for the long-term increase of value.
PKN ORLEN Management Board is convinced that consistent improvement of efficiency of the Company’s operating, expenses reduction that is analyzed, and financial discipline will maintain the Company’s financial standing unendangered.