Fitch: Ex-Rompetrol’s ratings, kept under negative outlook; Warns of possible downgrade

Fitch Ratings has maintained Romania-based KazMunayGas International (KMGI), long-term issuer default rating (IDR) at B+, on Rating Watch Negative, the agency announced on Friday.

The rating of KMGI, formerly The Rompetrol Group, is based on a bottom-up approach in line with Fitch’s parent and subsidiary rating linkage methodology, the rating agency said in a statement.

“The maintained RWN follows KMGI’s announcement that JSC National Company KazMunayGas (NC KMG, BBB-/Stable) has agreed to sell China Energy Company Limited (CEFC) a 51 percent stake in KMGI. The RWN also captures the litigation brought forward in May by Romania’s Directorate for Combating Organized Crime and Terrorism (DIICOT), where KMGI, Oilfield Exploration Business Solutions and Rompetrol Rafinare were summoned as civil liability parties in a case under investigation with DIICOT. The investigation may have significant negative financial consequences for KMGI. Fitch will resolve the RWN following the ownership change and clarification of potential consequences resulting from the investigation by DIICOT,” a press release reads.

On 9 May 2016 DIICOT announced that it had launched an investigation against 14 people in connection with the privatisation of the Petromidia refinery. KMGI, Oilfield Exploration Business Solutions (the former Rompetrol SA) and Rompetrol Rafinare are parties in the investigation. DIICOT also seized KMGI’s assets of RON3 billion (USD 770 million) including KMGI’s key asset – Petromidia refinery.

“We understand that the seizure has no immediate impact on KMGI’s day-to-day operations. KMGI is preparing a vigorous legal defence on the case, to challenge on merit the allegations in Romanian courts and, if necessary, in international arbitration courts. Importantly, the seizure of the refinery initiated in 2010 is still ongoing,” Fitch notes.

Until the ownership change, KMGI’s rating is based on a bottom-up approach in line with Fitch’s parent and subsidiary rating linkage methodology. The rating reflects a three-notch uplift from the company’s standalone credit profile, assessed at ‘CCC’ due to a weak financial profile (end-2015: funds from operations (FFO) adjusted net leverage of 12.9x), for parental support from NC KMG.

As regards the Memorandum of Understanding (MoU) between KMGI and the government in 2014, Fitch expected that the transaction would be financed by KMGI’s parent.

“Due to lack of progress in implementing the 2014 MoU and the ongoing DIICOT investigation, we do not expect the dispute between KMGI and the Romanian government relating to the conversion of bonds to equity will be cleared based on the MoU,” the rating agency also points out.

This statement comes after the magistrates of the High Court of Cassation and Justice (ICCJ) decided on Friday to maintain the seizure of RON 3 billion on Petromidia refinery shares, as well as on the accounts of individuals in Rompetrol II file.

The company says that the Court’s decision affects its development plans in the medium and long term and that it “will continue further steps of suing Romania at the arbitral tribunals in Stockholm, based on the Energy Charter Treaty and at the ICSID, arbitral tribunal of the WB , headquartered in Washington DC.