Fitch Downgrades OGX to 'CCC/CCC(bra)'; Outlook Negative
RIO DE JANEIRO -- June 14, 2013
Fitch Ratings has downgraded OGX Petroleo e Gas Participacoes S.A.'s (OGX)
foreign and local currency Issuer Default Rating (IDR) to 'CCC' from 'B-' and
its long-term national scale rating to 'CCC(bra)' from 'BB+(bra)'.
Fitch has also downgraded the rating of OGX's USD2.6 billion and USD1.1
billion notes to 'CCC/RR4' from 'B-/RR4'. OGX's wholly owned subsidiary, OGX
AUSTRIA GMBH, is the issuer of both notes. These notes are unconditionally and
irrevocably guaranteed by OGX, OGX Petroleo e Gas Ltda. and OGX Campos
Petroleo e Gas S.A.
The Rating Outlook is Negative.
KEY RATING DRIVERS
The rating downgrades reflect increased uncertainty about the willingness and
ability of OGX controlling shareholder Mr. Eike Batista to honor the company's
USD1 billion put option. Funding for OGX's capex program is vital to
increasing oil production, so a default on the put option would further
tighten the company's liquidity position.
Early this week, OGX disclosed that Mr. Batista had reduced his stake in the
company to 58.92% through the sale of 2.17% of the shares of OGX during May
2013. Although this sale is mostly symbolic, it raises concern about Mr.
Batista's commitment to the company. The reported selling price ranged between
BRL1.57 and BRL1.85 per share, which is significantly lower than the put
option execution price of BRL6.30 per share. This price differential supports
the uncertainty about Mr. Batista's willingness to honor the put option, which
expires on April 30, 2014. The unavailability of such funds would further
pressure OGX's ability to continue operating.
OGX's 'CCC' ratings reflect Fitch's concerns about the company's liquidity
during the next 12 to 18 months, given high capital expenditures that are
needed to increase production output and operating cash flow. As of March 31,
2013, OGX had USD1.1 billion of liquidity. OGX's ambitious capital expenditure
program of approximately USD1.3 billion in 2013 and its low to negative EBITDA
(subject to the speed of recovery in production volumes) is expected to result
in a depletion of the company's cash by the end of 2013. As of March 2013,
OGX's debt amounted to USD4 billion, mostly composed by USD2.6 billion notes
due in 2018 and USD1.1 billion notes due in 2022.
These rating actions take into consideration the cash infusion from OGX's
asset sales to Petronas and MPX. Although these transactions will provide a
fresh source of cash to the company, liquidity will remain tight and OGX will
need to access additional sources of funds to cover its cash flow deficit
absent the Batista cash infusion.
OGX's ratings will be downgraded if OGX liquidity risk continues to increase
and/or if it encounters additional execution issues with its exploratory and
development plan. A positive rating action could result from significant new
external sources of capital, including but not limited to the successful
execution of the Batista USD1 billion put, satisfactory production volumes,
coupled with lower uncertainties regarding reserves and liquidity.
OGX is a Brazilian oil and gas company created in 2007, 58.92% owned by EBX
Group. OGX has a portfolio of 62 blocks in Brazil and Colombia, including the
recently acquired 13 exploratory blocks in Brazil. In Brazil, OGX's blocks are
located in the Campos, Santos, Espirito Santo, Para-Maranhao and Parnaiba
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 8, 2012);
--'Rating Oil and Gas Exploration and Production Companies' (Aug. 9, 2012).
Applicable Criteria and Related Research:
Corporate Rating Methodology
Rating Oil and Gas Production Companies
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Fitch Ratings Brasil Ltda.
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