Moody's revises S-Oil rating outlook to negative on expansion plan

03 March 2014 09:55 Source:ICIS News
SINGAPORE (ICIS)--Moody’s Investors Service has revised its ratings outlook on South Korea’s S-Oil to negative from stable, wary of a major petrochemical expansion plan tied to the producer’s won (W) 519bn ($485m) land acquisition in Ulsan, the credit agency said on Monday.

S-Oil’s board approved the proposed acquisition of land located in the southeastern region of South Korea on 28 February.

Moody’s, which has a “Baa2” issuer rating on S-Oil, said there is a “high likelihood” that the company “will launch a large-scale capacity expansion” of petrochemical operations.

"If such a project materializes, it will likely pressure S-Oil's financial profile and entail significant execution risks," Moody’s vice president and senior analyst Mic Kang said in the statement.

As the likely capacity expansion will be debt-funded, S-Oil may see a material deterioration in its financial metrics during the lengthy construction period, Moody’s said.

“The scale and funding mix of the capacity expansion -- factors which remain uncertain -- will be the key drivers for the company's Baa2 rating over the next 6-12 months,” the credit ratings firm said.

The South Korean producer is not expected to reap benefits over at least the next three years should it decide to pursue the expansion, but the project will help improve the company’s business profile over the long term, it said.

S-Oil, which produces 669,000 barrels of oil per day (bpd), is the third-largest oil refining and marketing company in Korea by refining capacity. The company also operates paraxylene (PX), BTX (benzene-toluene-xylene) and lubricant plants.

The South Koream firm is 35%-owned by Aramco Overseas Co – a subsidiary of energy firm Saudi Aramco – and 28.4% owned by Korean Hanjin Group.

($1 = W1,070)
By Pearl Bantillo