RE: Moody's22 Oct 2020 14:33
Timmy,
Yes, with an upgraded credit rating, there is more chance of pension funds and other instituitional investors taking a position in Tullow.
As for private investors, I suppose it depends on both the future outlook of the company as well as the overall sector.
In terms of future outlook, don't forget that Tullow still has a going concern statement until March 2021 (Whether this statement will stay or not is TBC following January/March RBL retermination and once Tullow has finances sorted).
Regarding overall sector, it's best if you just look at oil prices as well as performance of supermajors. You'll know that there is an upturn/downturn in the sector when both of these change for the better/worse. Any upturns will attract serious long term investors to the overall sector (Including Tullow).
Investor Relations informed me that Moodys credit rating will take place following completion of Uganda transaction. This is the event that is pending under "merger/acquisition/divesture event" before Moodys can review.
Moody's upgrade requirements:
A rating upgrade would require
(i) confirmation that the production guidance reset by management in December 2019 can be sustained in the medium term;
- Production guidance was set at 75k, Tullow has to date performed very well, with production to end of Q3 being upper end of guidance at c. 75-77k bopd.
- This requirement is met.
(ii) material progress on the divestment programme allowing significant deleveraging and resulting in Moody's-adjusted total debt to EBITDA falling below 4.0x and
- This is a hard call. I think Tullow would be just under 4.0x based on guidance provided by Tullow. This requirement looks at TOTAL debt, as opposed to net debt. One thing i'm not certain of is "moody-adjusted". Will they take into account the proceeds for debt cancellation?
- As it stands, total debt is 3255m, with EBITDA for the year to be c. $800-850m, giving total debt to EBITDA to be there or thereabouts 4.0x.
(iii) restoration of a robust liquidity profile.
- Tullow has been working towards a robust liquidity profile and has achieved this. They have reduced liquidity and have managed well to perform well under a liquidity headroom of c. $500m. Furthermore, the proceeds from Uganda and guidance from Tullow indicates liquidity will be c. $1.2b by year end.
- This requirement is met.
ALL IMO. GLA.
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