Moody’s Assigns First-Time Baa3 Rating to Petronet LNG

Moody’s Investors Service assigned a first-time Baa3 Corporate Family Rating (CFR) to Petronet LNG Limited (PLL). The outlook on the rating is stable.

RATINGS RATIONALE

“PLL’s Baa3 CFR reflects its dominant position in a growing industry, as the first and largest LNG terminal operator in India, accounting for about 76% of total installed regasification facilities in India“, says Vikas Halan, a Moody’s Vice President.

The rating also benefits from company’s large proportion of cash flows from long term gas purchase and sale agreements with high quality counterparties, its experienced management team committed to a conservative financial policy, and its strong credit metrics with robust liquidity.

“PLL’s rating is, however, constrained by its small scale, its lack of business diversification, and the execution risk from its large capital expenditure over the medium term, which will result in deterioration of credit metrics over the construction period,” adds Halan, who is Lead Analyst for PLL.

“The stable outlook reflects PLL’s large headroom in its current rating category and our expectation that PLL’s credit metrics will stay appropriate for its ratings over the next 12-24 months, despite execution of largely debt funded expansion plans. It further reflects our expectation that given PLL’s track record and an experienced management team, PLL will execute efficiently its expansion plans and continue to maintain high utilization level at its Dahej terminal and improve utilization at Kochi terminal steadily to at least 50% over next 3 years,” adds Halan.

The rating is unlikely to be upgraded over the next 12-18 months given the execution risk around PLL’s expansion plans until 2016. Moody’s would consider upgrading the CFR if PLL manages to sustain its good operational performance, despite higher capacity and diversify further its business profile.

The ratings could be downgraded if Petronet departs from its conservative financial and hedging policy or if its capacity expansion leads to a deterioration of its operational efficiency. Moody’s would consider adjusted debt to EBITDA above 4.0x and EBITDA interest coverage below 3.0x, as indicative of negative pressure on PLL’s ratings.

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Press Release, March 4, 2014; Image: Petronet LNG