S&P: China Petrochemical Corp.'s Proposed U. S. Dollar Guaranteed Notes Assigned 'A+' And 'cnAAA' Ratings
The ratings on the notes are subject to our review of the final issuance documentation. Sinopec Group intends to use the issuance proceeds to refinance existing indebtedness and for general corporate purposes.
The rating on the notes is the same as the corporate credit rating on Sinopec Group because of credit substitution under the guarantee. Although Sinopec Group's ratio of priority claims to total assets could exceed our 20% notching threshold, the company's diverse businesses and operating assets held at the parent company mitigate the structural subordination risk associated with the indebtedness at the holding company level.
The notes are subject to early redemption upon the occurrence of certain events. These events include, but are not limited to, change of control, and failure to complete the registration of the guarantee with the State Administration of Foreign Exchange within 120 business days after the closing date of the offering.
The rating on Sinopec Group reflects the company's 'a-' stand-alone credit profile and our opinion that there is an extremely high likelihood that the government of China will provide sufficient and timely extraordinary support to the group in the event of financial distress. The negative outlook on Sinopec Group reflects the negative outlook on the sovereign rating on China.
We believe Sinopec Group's financial performance in 2016 will remain commensurate with the current rating. The company's integrated business model and our expectation of lower oil price volatility in 2016 should continue to support its refinery business. In response to the oil price slump, Sinopec Group steps up cost controls and reduces capital expenditure. The public listing of the marketing segment, if it materializes, is also likely to generate cash flow to help the group to deleverage.