OREANDA-NEWS. Fitch Ratings has revised Tunisian oil and gas company Entreprise Tunisienne d'Activites Petrolieres' (ETAP) Outlook to Negative from Stable and affirmed its National Long- and Short-term ratings at 'AA-(tun)' and 'F1+(tun)' respectively.

The rating action follows Fitch's revision of Tunisia's sovereign Outlook to Negative from Stable (see 'Fitch Revises Outlook on Tunisia to Negative; Affirms at 'BB-'' dated 4 March 2016 at www.fitchratings.com).

ETAP is a wholly-state-owned company with the specific status of a business-oriented public entity, commonly known as an EPNA. ETAP is an important asset for the Tunisian State (BB-/Negative), playing a major role in promoting the country's oil & gas reserves and ensuring continuous domestic market supply of oil & gas. The tight legal, strategic and operational links between ETAP and its sole shareholder have led Fitch to rate ETAP a notch below its parent, using its parent & subsidiary rating linkage methodology.

KEY RATING DRIVERS
Tunisia's Negative Outlook
ETAP's Negative Outlook reflects the pressure on its shareholder's ratings and our view that a further downgrade of Tunisia's ratings may put downward pressure on ETAP's ratings.

Improved Financial Transparency
Until July 2015, ETAP was required to import oil or gas on behalf of the State, and those imports were settled via the use of a trade compensation mechanism. Since then, those imports are no longer required, which has significantly improved ETAP's financial transparency, liquidity position and eased working capital management.

Wider Notching Driver
The State of Tunisia is committed to supporting ETAP in the funding of its investment programmes, via straight cash injections. Funding amounts are limited and only represent a fraction of ETAP's own revenues, but are a safeguard against unforeseen needs. As a result, any signs of a lack of State support in case of a weakening of ETAP's standalone credit metrics would justify a wider notching between the State's and ETAP's ratings.

Small Scale Relative to Peers
ETAP's business profile lacks the diversification of its private sector international peers, which leaves it substantially exposed to the volatility of oil and gas prices. Moreover, ETAP operates on a much smaller scale than its national oil company peers such as State Oil Company of the Azebaijan Republic (BB+/Negative) or JSC National Company KazMunayGas (BBB/Stable).

KEY ASSUMPTIONS:
Fitch's key assumptions within our rating case for the issuer include:
- Oil and gas prices in line with Fitch's base case price deck of USD35/bbl for oil and USD5/mcf for gas in 2016 and USD45/bbl and USD6/mcf in 2017.
- Capex includes maintenance capex and capex related to Nawara project spread over 2014-2016.
- No dividends.

RATING SENSITIVITIES
Positive: Future developments that could nonetheless lead to positive rating actions include:
- A change in Tunisia's Outlook to Stable may be replicated in ETAP's rating, unless its links with the State weaken.

Negative: Future developments that could nonetheless lead to negative rating actions include:
-Weakening links to the State or weaker State support, which would result in a downgrade of ETAP's ratings. A potential indicator of weaker State support would be a significant weakening of ETAP's credit metrics.

RATING SENSITIVITIES FOR THE SOVEREIGN RATING
The main factors that could, individually or collectively, lead to negative rating action are:
- Failure to increase the growth rate.
- Political destabilisation of the country stemming from terrorist risk or social unrest.
- Failure to stabilise government debt-to-GDP.
- Failure to reduce the current account deficit.

The main factors that could, individually or collectively, lead to positive rating action are:
- Increased growth prospects, for example related to structural improvements in the business environment and/or the security situation.
- Reduction in budget deficits consistent with stabilising the debt-to-GDP ratio in the medium term.
- A structural improvement in Tunisia's current account deficit, leading to reduced external financing needs and stronger international liquidity buffers.