Companies

Citic Resources falls in HK after moody's cuts outlook on earnings

(Agencies)
Updated: 2010-06-04 11:37

Citic Resources Holdings Ltd, the mainland energy supplier with assets in Kazakhstan, fell in Hong Kong trading after Moody's Investors Service downgraded its ratings outlook, citing reduced earnings potential.

The shares dropped 0.7 percent to HK$1.44 (18 cents) at 10:06 am local time, after falling as much as 2.1 percent. The benchmark Hang Seng Index declined 0.1 percent.

Moody's cut to negative from stable Thursday its outlook for Citic Resources's corporate rating and the Ba3 rating on the company's $1 billion of seven-year unsecured senior notes. The unit of Citic Group is planning to develop oil assets in China, Indonesia and Kazakhstan, and has borrowed from banks, including an unsecured five-year loan of $280 million in January 2008, to fund operations.

"The negative outlook captures Citic Resources's weakened earnings capability due to increased taxes on production at the Karazhanbas oilfield, in turn pressuring the company's ability to comply with the interest coverage covenant in its $280 million syndicated facility," said Renee Lam, a Moody's vice president and senior analyst.

Related readings:  Crude prices retreat after downgrade on Spain's rating  China to levy 5% resource tax on crude, gas  Limits on resource exports in line with WTO rules: experts

Citic Resources, a metal producer turned energy supplier, posted a 43 percent decline in profit last year after crude oil slumped, even as production at Karazhanbas rose 2 percent over 2008. Operations at the field will contribute more to earnings as oil prices recover to "a reasonable level," according to the company's latest annual report.

Crude output

The oil producer plans to triple crude output by 2014, CEO Sun Xinguo said in an interview on May 11. Much of Citic Resources's new production will come from the Bohai Basin off the northern coast of China, Sun said.

Ratings would be downgraded should there be any event, including covenant compliance, which may hamper Citic Resources's access to liquidity, Moody's said. They will also be cut if the company fails to ramp up production, commodity market fundamentals weaken or the energy supplier make "aggressive" acquisitions, the ratings company said.