Santos shares dip after credit rating cut

SANTOS shares were down 8% in this morning’s trade in response to Standard & Poor’s credit rating downgrade yesterday.
Santos shares dip after credit rating cut Santos shares dip after credit rating cut Santos shares dip after credit rating cut Santos shares dip after credit rating cut Santos shares dip after credit rating cut

According to Fairfax Media, the ratings agency cut Santos' long-term senior unsecured credit rating from BBB+ to BBB but also warned that another cut would come if oil prices remained low and the Gladstone LNG project suffered from an "unanticipated cost overrun".

The news also follows Santos' low oil price-triggered move to shelve its euro bond issue last week.

NAB credit analysts said S&P's decision to downgrade Santos' rating was "somewhat surprising".

"The heavy oil price falls recently have clearly caused S&P to take this action as pressure is placed upon earnings and cash flows just as the sizeable capital expenditure for the completion of its GLNG project is required," Fairfax Media quoted the analysts as saying.

Santos chief financial officer Andrew Seaton defended the company's fiscal position

"Santos has a robust funding position, with approximately $2 billion in cash and undrawn debt facilities available as at November 30, 2014," he said.

"S&P in their announcement note Santos' track record of a conservative funding approach, favourable debt maturity profile and adequate liquidity."

"Furthermore, S&P notes project execution risks are diminishing, with PNG LNG starting production in April 2014 and GLNG 90% complete in November 2014."

Some analysts consider a GLNG budget blowout a possibility.

Last month Macquarie Wealth Management said that GLNG's capital expenditure budget would grow by 44% to $26.6 billion going by "required growth capex from 2016-2020 to ramp up train 2 and actual exchange rates witnessed to date".

Last week Santos also revealed that it would rein in its capex and operating expenditure in 2015.

Santos shares were down 7.8% to $7.65 by 11.33am AEDT this morning and were 8.8% down to $7.57 by 12:10pm AEDT.

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