OREANDA-NEWS. Fitch Ratings says today that its ratings on China National Petroleum Corporation (CNPC, A+/Stable) and its subsidiary PetroChina Company Limited (PetroChina, A+/Stable) remain intact after PetroChina announced several transactions relating to its mid-to-downstream gas business. The transfer of PetroChina's city gas operations to its subsidiary, Kunlun Energy Co Ltd (KLE, A/Stable), is also in line with the agency's earlier expectations that KLE would play a larger role in the downstream gas operations of CNPC.

PetroChina on 25 November 2015 said it will sell a 50% interest in Trans-Asia Gas Pipeline Company Limited, which owns the Central Asia-China Gas Pipeline, to a subsidiary of China Reform Holdings Corp (China Reform) for CNY15bn-15.5bn. China Reform is an entity owned by the State-owned Assets Supervision and Administration Commission of the State Council (SASAC).

The impact from the stake sale on the group's overall leverage, which has worsened due to sustained low oil prices and high capex, and liquidity, will be minimal. Based on the 3Q15 financial position of PetroChina, the expected sale proceeds of CNY15bn-15.5bn would reduce net debt by a modest 4%. We expect CNPC's capex requirements to be lower than in previous years, but remain substantial at between CNY250bn and CNY300bn per year over the next two to three years.

The partial stake sale in the Central Asia-China Gas Pipeline, a very strategic asset for China, to a government-related entity is in line with the government's strategy to increase mixed-ownership of state assets. The transaction is also in line with Fitch's view that China will maintain effective control over such strategic assets even as the state pushes ahead with reforms of state-owned entities. However, it is unclear how such partial stake sales fit into a potential broader re-organisation of China's large pipeline networks, which are mostly owned by its national oil companies led by CNPC.

In addition to the above, the CNPC Group is also reorganising its gas distribution business. KLE, which is 58.33% owned by PetroChina, will be integrating with PetroChina Kunlun Gas Co Ltd (Kunlun Gas). Kunlun Gas is a 100% owned subsidiary of PetroChina, and mainly operates the city gas business of the group. The final form of integration has not yet been decided, though announcements by PetroChina and KLE say it could be via KLE acquiring an equity stake in or assets of Kunlun Gas, or through other forms of integration.

Fitch believes that KLE would be the group's key platform of gas distribution business once the integration is completed. KLE has historically grown through various asset injections by its parent, and the proposed integration reinforces KLE's strategic importance and close linkage with its parent. As such, Fitch still views KLE's credit profile as closely linked to that of its parent.