martes, 31 de julio de 2012

Standard and Poor's gives PDVSA a very generous rating

S&P released its assessment of PDVSA yesterday, Monday July 30, 2012.

PDVSA’s rating by S&P is B+, somewhere between B and BB. The definitions for these ratings are:
‘BB’— Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions.
 ‘B’—  More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial commitments.

I believe the rating of S&P is extremely generous since it ignores some of the operational and financial difficulties the company has.

I have made some comments to the report, which is partly transcribed below (see link at the end of this note, if you wish to read the entire report by S&P) :  


     -- Venezuelan state-owned oil company PDVSA's business and financial

performance remain aligned with our expectation.

     -- We are affirming our 'B+' rating on PDVSA.

     -- The stable outlook reflects our view that PDVSA's relationship with

the government will not change significantly over the next few years.

My Comment: PDVSA’s relationship with the government could change dramatically in the next few months. S&P is predicting a Chavez’s victory but this prediction could be very wrong. A more professional appraisal would have at least considered another scenario to the one linearly predicted by S&P.  

                                                                 Rating Action

On July 30, 2012, Standard & Poor's Ratings Services affirmed its 'B+'

long-term corporate credit and senior unsecured ratings on Petroleos de

Venezuela S.A. (PDVSA). The outlook is stable. This affirmation follows our

regular annual review.


The 'B+' rating on PDVSA, which is at the same level as that on its owner, the Bolivarian Republic of Venezuela (B+/Stable/B), reflects our opinion that
there is an "almost certain" likelihood that the government would provide
timely and sufficient extraordinary support to PDVSA in the event of a
financial distress.

 My Comment: I find this opinion extremely fragile. It says the Venezuelan government would provide timely and extraordinary support to PDVSA in the event of a financial distress. But the reality is different. It is PDVSA that is supporting the government and, in fact, being mercilessly used by the central government as a vehicle for progressive national debt. The Venezuelan government does not have the financial capability to rescue PDVSA in a crisis.

We assess PDVSA's stand-alone credit profile (SACP) at
'b+', which reflects our assessment of a fair business risk profile and an
aggressive financial profile. It also incorporates continued delays in
releasing its financial information, as well as our view that the company
could prioritize transfers to the government before debt payments in a
distressed scenario.

 My comments: PDVSA has been diverting the money required for its investments and maintenance to the central government. Not only are they late in presenting their financial information, they are also late in paying debtors. No mention is made by S&P of the avalanche of legal actions against PDVSA in international organizations. No mention is made of the increasing debt profile of the company and of the diminishing export levels due to domestic consumption. They are now resorting to asking foreign partners for money.

In accordance with our criteria for government-related entities, our view of
an "almost certain" likelihood of extraordinary support is based on our
assessment of the following factors:

     -- "Critical" role in contributing about 50% of the government's revenues

and 90% of the country's exports, and playing a key position in meeting the

sovereign's political and economic objectives; and

     -- "Integral" link with the government, given its full and stable

ownership of the company. We also believe that the government will provide

considerable and timely credit support to the company in all circumstances.

 My comments: Again, it is not so much a matter of wishing to do it but, rather, a matter of being able to do it. PDVSA’s credit rating is much higher than the government’s. PDVSA can probably bail the government out, not the other way around.  

 PDVSA's fair business risk profile is based on its position as a leading
integrated oil company with a considerable proven reserve base, low discovery
and development costs, and its ownership of CITGO Petroleum Corp.
(BB-/Stable/--),one of the leading refiners in the U.S. We expect PDVSA's
business strategy to continue focusing on developing Venezuela's hydrocarbon
resources and improving its refineries. The company adjusted its projected
capital expenditures to $142 billion for the next five years to achieve a
sustainable crude oil production of 4.5 million barrels per day (mbpd) by 2015.

 My comments:S&P says that PDVSA will “continue developing hydrocarbon resources and improving its refineries”. This is a wrong statement. They have not been doing this at all. The production has fallen off significantly as compared to the one before Chavez and has remained, at best, stagnant during the last two to three years. A projected capital expenditure of $28 billion per year is totally unrealistic, as the average investment of PDVSA in the petroleum sector during the last years has been around $10 billion A production of 4.5 million barrels per day by 2015 is science fiction. At least S&P should have seen these numbers with a more critical eye. They swallowed them whole, hook, line and sinker.    

During 2011, PDVSA's crude oil production averaged 2.991 mbpd, up 1% from
2.975 mbpd in 2010 to meet OPEC production quota for that year. Current OPEC
quota for Venezuela is 3.2 mbpd. We believe that oil production will slightly
increase further and reach 3.5 mbpd for the next few years, although the
company's expectation is to increase its total production to 4.5 mbpd in 2015.

 My comments:  PDVSA’s oil production (different from national total production, which includes foreign partners prouction) is much lower than the figure readily accepted by S&P. The president of the company, Rafael Ramirez, in a memo to Chavez leaked to the public admitted that it was in the order of 2.6 million barrels per day. Independent observers put it at even less.  

 Those wishing to read the whole report can do so by entering:         

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