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Wednesday 17 July 2019
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Petrotrin’s persistently weak liquidity

Moody’s points to

Petrotrin's refinery in Pointe-a-Pierre
Petrotrin's refinery in Pointe-a-Pierre

CREDIT ratings company Moody’s has expressed concern about the persistently weak liquidity situation of state-owned Petrotrin but says the company could be able to reverse the weak operating performance in the next 12 to 18 months.

Moody’s in their annual update on Petrotrin reported that in September 30, 2017 Petrotrin’s cash position of $126 million did not suffice to cover over $1.2 billion in maturing debt up to September 2019 (which includes $205 million in guaranteed revolving loans) plus around $30 million in interest expenses and $140 million in maintenance capital spending (as per Moody’s estimates and equivalent to depreciation).

“The company’s liquidity risk will increase if it continues to face cash flow and operating challenges inherent to an old and inefficient asset base, in addition to the approaching maturity of $850 million in global notes, due in August 2019, which management expects to start refinancing only in 2019, after the business changes are more advanced.”

Moody’s reported Petrotrin’s B1 debt rating and its caa1 Baseline Credit Assessment (BCA) reflects a company’s intrinsic credit risk regardless of government support considerations, are based on the company’s persistently weak liquidity position and its limited ability to revert negative operating profit due to rigid cost structure, small operating size, and an unfavourable environment of increasing expenses.

“Petrotrin’s rating and BCA also consider the company’s weak credit metrics, high refinancing risk, the cyclical nature of earnings and cash flows, inconsistent operating performance reflected in its low refinery utilization, and the concentration risk of its reliance on a moderately-complex single refinery.”

Moody’s said the rating and BCA also capture the small size and maturity of Petrotrin’s hydrocarbon reserves, and its considerable investment needs given its mature asset base.

“However, the BCA considers the company’s effective monopoly position in the wholesale distribution and export of refined petroleum products and the modest degree of operational integration provided by its exploration and production segment.”

Moody’s said the company’s credit strengths were its somewhat integrated operations, local monopoly position and assumptions of very high government support while the credit challenges were weak liquidity and high refinancing risk, single asset refinery, cyclical and volatile earnings and cash flows and mature asset base with high investment needs.

Moody’s explained the stable outlook on Petrotrin’s rating reflects Moody’s expectation that the company could be able to revert the weak operating performance in the next 12 to 18 months.

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