Fitch Ratings has affirmed
The Outlooks on the IDRs of the
Sinopec's rating is closely aligned with Fitch's assessment of the credit profile of parent
Key Rating Drivers
Parent's Very Strong State Linkage: Fitch assesses
'Very Strong' Impact of Default: Fitch assesses the socio-political impact of a
'High' Legal Incentive to Provide Support: As a principal subsidiary, a default of Sinopec would trigger the cross-default provision in
'High' Strategic Incentive: We assess the financial contribution at 'High'. Sinopec holds around 80% of the groups' assets across industry chains, and accounts around 80% of the Group's EBITDA. We assess Sinopec as providing a 'High' competitive advantage for the Group, and is the primary platform to carry out national energy security and energy transition mandates for the parent. We assess Sinopec's growth potential as 'Medium'.
'High' Operational Incentive:
Scale and Integration: Sinopec's profile is supported by its dominant scale as well as a presence in both upstream and downstream operations. Domestically, it is the largest refined oil products supplier and the second-largest oil and gas producer. It is also one of the largest Fitch-rated energy companies globally, with top capacities in refining and key petrochemicals projects. The integrated business model enables Sinopec to weather fluctuation over a commodity-price cycle.
Recovering Refining and Marketing Segment: We expect Sinopec's volume to increase. Domestic gasoline demand has recovered to pre-pandemic levels, with the removal of travel restrictions. Volume growth has been supported further by strong export volumes, spurred by a decent crack spread. We expect 5% and 14% yoy increases in 2023 throughput and domestic refined oil products sales, respectively, as a result.
We also expect Sinopec's 2023 refining and marketing (R&M) margins to improve, with higher demand and smoother pass-through as crude oil prices retreated. We estimate mild margin expansion in 2024-2026 as the oil price declines further, although new capacities and slower demand growth would limit future profit growth.
Moderating Upstream Performance: Fitch expect Sinopec's upstream earnings to decline in tandem with oil prices in 2023. The company reported realised oil and gas prices decreasing by 20% and 6%, respectively, yoy in 9M23. This is partially offset by gas production growth, which increased by 8.7% yoy in 9M23. Sinopec aims to lift gas output as a transitional energy to net zero.
Very Low Leverage: Sinopec's strong financial metrics and its diversified business model and leadership position in
Derivation Summary
Our assessment of Sinopec is aligned with our internal assessment of
Key Assumptions
Fitch oil price base-case assumptions for Brent:
We assume flat oil production and around mid-single-digit growth in gas output over 2023-2026
Refining throughput in 2023 to increase to 254million tonnes, in line with management guidance. Volumes will grow slightly on demand recoveries and new facilities coming on stream. Refining and marketing EBIT to improve in 2023 from 2022 when industry profitability was affected by the pandemic and surging costs. Future margin to expand mildly on falling oil prices.
Capex to decline to
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Positive action on the sovereign, provided Fitch's assessment of
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Negative rating action on the sovereign
Weakening of likelihood of state support for
Significant weakening incentive for
Rating sensitivities for the China Sovereign as of
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Public Finances: A sustained upward trajectory in general government debt/GDP from persistently high fiscal deficits or a rise of contingent liabilities, for instance from LGFVs, such that debt levels compare less favourably with rated peers.
Macro: Reduced confidence in economic policymaking and medium-term growth prospects.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Structural Features: A material reduction in macro-financial risks and associated contingent liabilities facing the sovereign, for example by maintaining credit growth below nominal GDP growth over a multi-year period, which would cause the removal of the -1 QO notch on structural features.
External Finances: Widespread adoption of the Chinese yuan as a reserve currency, as reflected in a substantial increase in the share of yuan-denominated claims in the
Liquidity and Debt Structure
Adequate Liquidity: Sinopec has comfortable liquidity, with cash and cash equivalents of
Issuer Profile
Sinopec is
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Sinopec's rating is directly linked to the credit profile of
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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