Fitch Ratings: APAC Oil and Gas Companies' Ratings Stable amid Cash Flow Pressure

(Fitch Ratings-Seoul-12 October 2020)-- Fitch Ratings expects almost all APAC oil and gas companies to post negative free cash flow in 2020 due to lower oil and gas prices stemming from the coronavirus pandemic and continue to do so beyond 2021 in most cases albeit with gradual improvement due to higher price assumptions.

However, their Issuer Default Ratings (IDR) and Outlooks have stayed mostly unchanged in the current downturn except in the case of changes in sovereign rating Outlooks or revisions to their parents' Standalone Credit Profiles (SCP) and our opinion of weaker linkage as the majority of Fitch-rated APAC oil and gas companies are government-related entities (GRE) or have parent companies that are GREs and their IDRs are linked to or affected by sovereign ratings or by the ratings of their GRE parent companies.

We expect companies with stronger balance sheets and flexibility to adjust capex and costs, or those that have some cash flow protection, to maintain their SCPs during this downturn despite a temporary increase in leverage and negative free cash flow generation.

On the other hand, companies with weaker balance sheets and limited operating flexibility will be more affected by the lower oil prices and their SCPs were revised down, including those of Oil India Limited (BBB-/Negative) and PT Saka Energi Indonesia (BB/Negative).