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Tunisia: Fitch Affirms ETAP at ‘AA-; Outlook Stable

Fitch Ratings, on Monday, affirmed Tunisian oil and gas company Entreprise Tunisienne d’Activites Petrolieres’ (ETAP) National Long-term rating at ‘AA-(tun)’ with Stable Outlook and National Short-term rating at ‘F1+(tun)’. 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-/Stable), playing a major role in promoting the country’s oil & gas reserves and ensuring continuous domestic market supply of oil & gas, the ratings agency said in a statement Monday.

Considering the tight legal, strategic and operational links between ETAP and its sole shareholder, Fitch applies its parent & subsidiary rating linkage methodology, notching ETAP one notch down from its parent.

As ETAP’s liquidity is dependent on the state trade compensation mechanism and cash injections to support capital expenditure, any sign of a lack of state support or financial pressure on the state would justify wider notching between the state’s and ETAP’s ratings. At present, ETAP continues to receive annual cash injections from the state in a context of rising capex. Fitch expects around ETAP will receive TND50m from the state in 2015, Fitch indicated.

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 Azerbaijan Republic (BBB-/Stable) or JSC National Company KazMunayGas (BBB/Stable).

Fitch expects ETAP’s revenue and operating EBITDAR to continue to decline in 2015, driven by further decline in oil and gas prices (average of USD55/bbl for oil in 2015 versus USD105/bbl in 2014) despite a favorable US dollar/Tunisian dinar EXCHANGE RATE.

Production output for crude oil, at 60% of revenue, declined by 20% yoy in 2014 and Fitch does not expect a reversal in oil production trend over the next two years.

However, gas and liquefied petroleum gas (LPG) production is expected to continue to increase, partly driven by the Nawara project (production expected to start by end-2016).

Funds from operations (FFO) should reach TND600m in 2015 according to Fitch’s forecasts, and is yet to benefit from the positive reversal of working capital needs.

The ratings agency said it expects FCF to remain negative in 2015 due to high capex and dividends and to improve from 2017 as the Nawara project starts to feed into profits. Fitch Ratings has affirmed Tunisian oil and gas company Entreprise Tunisienne d’Activites Petrolieres’ (ETAP) National Long-term rating at ‘AA-(tun)’ with Stable Outlook and National Short-term rating at ‘F1+(tun)’. ETAP is a wholly-state-owned company with the specific status of a business-oriented public entity, commonly known as an EPNA.

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