Fitch retains MOL’s rating, despite Hungary downgrade

10 January 2012 17:04  [Source: ICIS news]

LONDON (ICIS)--Fitch Ratings has not cut MOL’s credit rating, despite its downgrade of Hungary, citing the improved 2010/2011 credit metrics of the Hungarian oil, gas and petrochemicals group, the global rating agency said on Tuesday.

On 6 January, Fitch became the third agency to cut the credit rating of the country to junk status, blaming the Hungarian government’s “unorthodox policies” as it dropped the country’s foreign currency Issuer Default Rating (IDR) to BB+ from BBB-, with a Negative Outlook.

However, Fitch said it had retained MOL’s long-term foreign and local currency IDRs of BBB- with Stable Outlooks, reflecting MOL’s “improved credit metrics in 2010–2011 and the company’s plan to fully finance capex [capital expenditure] from operating cash flow in 2012–2013”.

“Fitch assumes that MOL’s management will continue its prudent financial risk policy, and would reduce capex in the event of weaker-than-projected cash flow,” it added.

Fitch cautioned that it “believes that MOL’s rating headroom nonetheless continues to be limited due to a number of negative developments in the external environment”.

“These include the weak economy and the increased tax burden in Hungary, difficult conditions in European refining and the increased business risk in Syria, an important region for MOL’s upstream business. Most likely triggers for a near-term revision to the ratings would arise from a further deterioration of the economic situation in Hungary, or more difficult and costly access to debt markets and bank funding,” the rating agency added.

Fitch also noted that MOL benefited from not having its geographical business exposure dominated by the Hungarian economy. The country represented 29% of total group revenue and 50% of earnings before, interest, depreciation and amortisation (EBITDA) in 2010, the agency said.

Read Paul Hodges’ Chemicals and the Economy blog

By: Will Conroy
+44 20 8652 3214

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