PKN ORLEN regains a positive rating outlook
Today, Fitch Ratings has revised the outlook for PKN ORLEN's long-term rating (BB+) from stable to positive. This long-awaited change is a result of a consistent policy aimed at deleveraging the company, which has significantly improved its credit standing, despite the persistently challenging climate for the industry across Europe. The change of the outlook to positive means that over the next 12-24 months Fitch may upgrade PKN ORLEN's rating to BBB-. Concurrently, for the first time the company was assigned national rating BBB+ with a positive outlook.
Fitch approves of the company's efforts aimed at reducing the leverage. As the rationale for their decision, Fitch analysts emphasise the successful sale of shares in Polkomtel S.A., lower capital expenditure over the last two years, and a consistent dividend policy. According to the agency, the measures pursued by PKN ORLEN improve its creditworthiness, which is particularly noteworthy given the difficulties faced by the European oil refining sector as a result of excessive capacities and weaker demand.
"PKN ORLEN has come a long way since 2008, when its expansion in numerous segments, and especially earlier acquisitions, increased the company's debt burden. Thanks to the consistently pursued strategy, consisting in debt reduction on the one hand and continuation of investment projects essential for building the company's value in the future on the other, we have regained stability and market confidence. Investors and analysts appreciate the fact that during these lean years we have managed to downsize our debt by more than PLN 7bn, while placing in service the PX/PTA complex, which for more than a year has helped us smooth out the revenue swings in the petrochemical segment," Jacek Krawiec, President of the PKN ORLEN Management Board, stressed.
According to Fitch, compared with the period between 2008 and 2010 the company has now much better financial flexibility, allowing it to cut down capital expenditure if cash flows become weaker. The agency positively views PKN ORLEN's ability to manage working capital fluctuations. In the agency's view, the strategy followed by PKN ORLEN should provide it with additional flexibility should the sector slide into a deeper downturn.
It is also the first time the agency has assigned PKN ORLEN national rating BBB+ with a positive outlook. National ratings serve mainly domestic investors operating in their home markets, and are not comparable between different countries.
"As we are determined to consistently keep our financial ratios within safe levels, I am confident that it is only a matter of time before we regain a higher rating. The strong national rating is also a thing of great importance to PKN ORLEN. It has sent a positive signal, much needed now that we are contemplating retail bond issues on the Polish market," said Sławomir Jędrzejczyk, Vice-President of the PKN ORLEN Management Board and CFO. "We are a reliable partner, as amply confirmed by the interest in our seven-year bonds issued last February, in the case of which the book was nearly three times covered," he added.
According to the agency, any further upgrade of the company's rating would depend on its consistency in maintaining debt ratios at sound levels, the amount of generated cash flows, the progress of work aimed to change Poland's mandatory stocks regime, and mitigation of the margin volatility.
In the second quarter of 2012, PKN ORLEN saw a 9% rise in revenue. It also posted PLN 1.2bn in LIFO-based operating profit – the best performance since 2006 – on the back of an improved macroeconomic climate, combined with recovering retail margins and an over twofold rise in the refining margin on global markets. Despite a continuing downward trend in fuel consumption across its home markets, the company recorded a 2% increase in retail sales volumes. PKN ORLEN's debt and financial ratios remained within safe limits. In addition, an issue of seven-year corporate bonds worth PLN 1bn was successfully floated on the stock exchange.
