OREANDA-NEWS. Fitch Ratings has affirmed APETRA's Long-term foreign and local currency Issuer Default Ratings (IDRs) at 'AA' and its Short-term foreign currency IDR at 'F1+'. The Outlook is Negative. Its senior unsecured notes have also been affirmed at 'AA'.

Fitch rates APETRA on a top-down basis using 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, the ratings of APETRA 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 public service role. All net profits are incorporated into APETRA's reserves.

Oil is crucial for the domestic energy supply, representing the first source of energy consumed in Belgium. European Directive 2009/119/EC requires each member state to hold strategic oil stocks to cope with the risk of supply disruptions. APETRA is the exclusive manager of this obligation for Belgium. Fitch assumes that the Belgian State is highly motivated to provide support, in case of need, to APETRA and that it has the legal and financial means to enable APETRA to meet 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 to the state its debt levels and the value of its stocks on a quarterly basis.

APETRA's contribution paid by oil companies and distributors in Belgium, which is indexed to oil prices, has continued to decline and is likely to reduce cash flow to EUR42.3m at end-2015 from EUR103m in 2014. The lack of definition of a minimum guaranteed contribution means APETRA may face a shortfall in covering its costs. Assuming a low inflation scenario and following a decrease of stockholding requirement, cash flow would reach about EUR50m in 2018.

In 2014, following a change in the calculation method, APETRA's required oil stocks diminished in absolute value by 20%, leaving it with stocks that were surplus to requirements. For 2015, APETRA will be disposing of this surplus stock (EUR90m), in addition to using its liquidity (EUR73.7m at end-2014), to repay its debt annuity (EUR180m), given its declining cash flow.

The risk of refinancing is limited by APETRA's access to the Belgium debt agency in case of need. Furthermore, due to the decline of its stock requirements, APETRA would not need to issue new debt in the medium term (except for the refinancing of bond issues). This means outstanding debt may decline from EUR1.3bn at end-2014.

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. Such 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, a positive action on the rating of Belgium would automatically be reflected in the ratings of APETRA.