CPC's proposed issue gets cautious mark

Taiwan Ratings Corp (中華信評) said on Friday that it would assign a "twAAA" issue rating to Chinese Petroleum Corp's (CPC, 中油) proposed NT$15 billion (US$456.2 million) unsecured corporate bond issue.

But the company's "twAAA" rating was placed on CreditWatch with "negative implications," Taiwan Ratings added, citing concerns over high crude oil costs.

Taiwan Ratings said that its main worry was that CPC, as a wholly government-owned refinery, might not be able to fully pass on the cost increase to consumers because of the government's inflationary concerns.

CPC last week it might post losses of NT$2.9 billion last month and cumulative losses of NT$25.37 billion in the first eight months.

While CPC raised the prices of liquefied natural gas and liquefied petroleum gas last month, following three hikes in gasoline prices this year, the price increases still did not fully reflect the cost hikes.

According to Taiwan Ratings, the price of CPC's imported crude oil rose 107 percent to US$68.81 per barrel last month from US$33.26 in January last year, while its domestic gasoline price rose only 13 percent over the same period.

As a state-owned firm, CPC still has strong financial flexibility, with large unused short-term credit facilities. But Taiwan Ratings said that CPC's leverage would increase further if operating losses continue to expand, further weakening its financial risk profile.