Moody’s revises Japan’s Cosmo Oil rating outlook to 'negative'

13 February 2012 06:30  [Source: ICIS news]

SINGAPORE (ICIS)--Moody’s Japan KK has revised on Monday the outlook on its credit rating for Cosmo Oil to “negative” from “stable” because of profitability issues stemming from a prolonged shutdown at its Chiba refinery.

“The change in outlook reflects Moody's concerns that the delay in the restart of the company's refinery facilities in Chiba could negatively impact any improvement in its overall credit matrix over the medium term,” the ratings agency said in a statement.

A negative outlook indicates that the company’s Baa3 long-term issuer rating by Moody’s may be downgraded.

“The company's oil exploration and production business will mitigate the decline in overall earnings, but possibly not sufficiently to avoid a downgrade,” Moody’s said.

Cosmo Oil’s Chiba facility was damaged by the earthquake and tsunami that hit northeastern Japan on 11 March 2011. The facility has not been fully restarted.

“The process [of restarting the facility] is taking longer than expected and the additional costs caused by the delay have put negative pressure on its earnings,” the ratings firm said.

A demand/supply imbalance in the domestic oil market after the March earthquake further eroded Cosmo Oil’s profitability, Moody’s added.

The Chiba refinery is expected to increase production in the fourth quarter, with the utilisation ratio rising to 70-80% in the first quarter of 2013, Moody's said.

Still, concerns of further delays in restoring production and the associated costs “will lead to a deterioration in cash flow to a level that does not support the current Baa3 rating”, it said.

By: Pearl Bantillo
+65 6780 4359

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