The EBITDA net leverage for most of our rated APAC oil refining and marketing (R&M) companies will rise in 2024 due to their high capex and negative free cash flow, following an improvement in 2023, which was aided by robust refining margins, and increasing demand and marketing margins, says Fitch Ratings. However, most companies will maintain adequate headroom for their standalone credit profiles (SCPs).

We expect rising capex intensity in the sector, driven by the sovereign-backed entities’ increased spending to expand refining, petrochemical and retail capacity, along with a gradual rise in energy transition investments. This will lead to negative free cash flow for most companies, notwithstanding steady operating margins.

We regard the impact of rising energy transition capex on the SCPs as manageable currently. The net zero targets across companies focus on increasing renewable’s share in the energy mix, gas distribution, petrochemical production and electric-vehicle charging stations, and building green hydrogen and carbon capture plants.

Lower crude oil prices than last year will aid downstream profitability for most downstream companies in APAC in the near term. However, a sharp or sustained rise in crude prices, given emerging geo-political risks, could present downside risks, leading to varying degrees of government intervention to limit cost pass-through to retail customers.

Most of the Fitch-rated oil R&M companies in APAC are government-related entities (GREs), or subsidiaries of GREs, with their ratings either equalised or capped at that of the sovereign or sovereign-owned parent. A downward revision of their SCPs will thus not affect their ratings.
Source: Fitch Ratings