OREANDA-NEWS. Fitch Ratings has affirmed APETRA's Long-Term Foreign and Local Currency Issuer Default Ratings (IDRs) at 'AA' with Negative Outlook and its Short-Term Foreign Currency IDR at 'F1+'. Its senior unsecured notes have also been affirmed at 'AA'.

Fitch classifies APETRA as a credit-linked entity under its public-sector entity rating criteria, due to the consolidation of its debt into general government accounts, strong oversight by the government and its strategic role in government policy through ensuring the security of oil supplies for Belgium. As a result, APETRA's ratings are equalised with those of, and credit-linked to Belgium (AA/Negative/F1+).

KEY RATING DRIVERS

As a wholly state-owned entity, in case of dissolution APETRA's assets and liabilities would be transferred to the state or another public entity. Although APETRA is financially autonomous, dividend distributions to its sole shareholder, the Belgian state, are not possible because of its by-laws and public service role.

Oil is crucial for the domestic energy supply, representing the first source of energy consumed in Belgium. A European Directive requires each member state to hold strategic oil stocks. APETRA is the exclusive manager of this obligation for Belgium. Fitch assumes that the Belgian state is highly motivated to provide support, and that it has the legal and financial means to enable APETRA to meet its debt-service obligations on a timely basis.

Given APETRA's public service role and its consolidation into the general government accounts, the state exerts strong administrative, legal and financial oversight. The state approves APETRA's annual budget in addition to its multi-year plan. APETRA reports its debt levels and the value of its stocks to the state on a quarterly basis.

Following a devaluation of stock by EUR472.7m APETRA posted a negative net result at EUR455.6m, implying negative equity of EUR116.7m at end-2015. In order to help APETRA to fulfil its storage requirement, the Belgian state decided to allocate an exceptional subsidy of EUR35m, allowing APETRA to post an expected net positive result of EUR41.9m at-end 2016.

In 2016, APETRA faces a switch in the calculation method, implying a 38% increase of its requirement for storage compared with 2015. Fitch expects the Belgian state will allocate exceptional subsidies of EUR76m in 2017 and EUR55m in 2018 (as stated in the last APETRA progressive muti-year plan) to fulfil APETRA's oil stocks obligation in 2018.

The risk of refinancing is limited by APETRA's access to the Belgium debt agency, which will refinance debt at the respective maturity date. Despite an increase in its stock requirements and thanks to the exceptional subsidies from the state, APETRA will need to issue new debt of an average EUR80m per year. Combined with a repayment of EUR80m to Belfius Bank, this would imply a stabilisation of outstanding debt at the 2016 level.

APETRA's levy is collected on a monthly basis and is linked to the sale of each oil company and distributor in Belgium, resulting in stable cash inflows. The collections are enforced through state control.

RATING SENSITIVITIES

A downgrade could follow a similar rating action on the sovereign, an adverse change in the legal framework - which Fitch considers unlikely at present - and a weakening of expected support from the state.

Conversely, positive rating action on Belgium would automatically be reflected in APETRA's ratings.