ENN Energy Holdings Ltd. (02688.HK) will not see any dent in its financial profile even after the completion of its acquisition of a 1.12 percent stake in the refined oil products retailing business of China Petroleum & Chemical Corp. (Sinopec, 00386.HK), rating agencies said.
“The acquisition will have no immediate impact on ENN’s financial profile, given its manageable size and prudent financing mix,” Ivy Poon, a Moody’s Analyst, said in a statement Tuesday.
The acquisition will strengthen ENN’s relationship with Sinopec, China’s major gas supplier. It will also create potential business synergies and expansion opportunities for ENN, according to Moody’s.
ENN’s share price slid as much 1.61 percent on Monday and fell further on Tuesday before closing at HK$55.35 (US$7.11). Sinopec, meanwhile, tumbled 10 percent over two sessions, closing Tuesday’s trade at HK$7.1 compared with Friday’s finish of HK$7.89.
On Sept. 14, ENN announced that it has conditionally agreed to acquire 1.12 percent equity interest in Sinopec Marketing for approximately 4 billion yuan (US$650.8 million).
Fitch said it had already anticipated that ENN would deploy a significant portion of its 7 billion yuan end-June cash on hand on acquisitions and business expansion programs. It expects ENN to continue to expand its footprint in natural gas refueling stations of which the risk profile is higher than that of the city gas distribution business.
ENN is expected to provide sourcing and transportation services relating to natural gas for Sinopec’s fuel stations. ENN will also work with Sinopec to transform the gasoline refilling stations so that they also supply compressed natural gas or liquefied natural gas, Fitch said in a separate statement.
Moody’s noted that the acquisition allows ENN to access Sinopec’s massive network of fuel stations, with more than 30,000 locations, offering the company good growth potential.
This would lead to the credit metrics of ENN in the next one to two years staying at similar levels to those seen in 2013. Adjusted debt to earnings before interest, tax, depreciation and amortization (EBITDA) will stand below three times and adjusted retained cash flow to total debt will hover around 15 percent between 2014 and 2016, it said.
However, Fitch expects ENN’s overall EBITDA margins to decline because of the bigger contribution from recurring natural gas sales, which have lower profitability, and as cost pass-through protects only dollar margins.
In the medium term, the margin is likely to stabilize around the mid-teens, while funds flows to operations (FFO) to fixed charge coverage ratio is likely to remain above four times in the medium term compared with 4.2 times a year ago.
FFO to net adjusted leverage is forecast to remain below four times in the medium term compared with 2.2 times last year after incorporating the Sinopec Marketing investment, the rating agency said.
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