Bucharest University of Economic Studies

Faculty of Business Administration in foreign languages

Credit Analysis of Rompetrol

Prof. Coordinator:

Team:

Cristea Loredana Nicoleta Roman Andreea

Group no. 132

 

BUCHAREST

2016

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Table of contents 1. Description of the company, History, Organization, Shareholders.............................................3 1.1 Type of the company.............................................................................................................4 1.2 History...................................................................................................................................5 2. Market analysis............................................................................................................................6 3. Description of the loan.................................................................................................................7 4. Market position of Rompetrol......................................................................................................7 5.Competitors...................................................................................................................................7 6. SWOT analysis............................................................................................................................8 7. Financial analysis of the borrower ..............................................................................................9 8.Credit history .............................................................................................................................12 9. Credit scoring.............................................................................................................................12 10. Risk evaluation.........................................................................................................................12 11. Credit decision.........................................................................................................................13 12. References................................................................................................................................13

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1. Company description, History, Organization, Shareholders

Rompetrol is KMG International umbrella brand under which we operate the activities of

quality fuel distribution in Romania, Moldova, Bulgaria, Georgia and France. The success of the brand is possible due to the international expansion, four decades of

expertize in exploration and production, modernity of Petromidia refinery, one of the most important at the Black Sea shore. Rompetrol is a continuous source of energy starting from extraction and production of crude, refinery and transformation in high quality products, distributed in our premium gas stations, modern design with focus on all details.

Is also the energy of the professionals behind the Rompetrol brand, who follow their ambition of getting furtherer.

Rompetrol means high standard quality, state of art technology that is reflected in the fuel range, the over 1000 gas station network from 5 countries, unique payment at the pump system and the biggest GPL distribution network in Romania.

Rompetrol is the main brand of KMG International and one of the most well-known and

reputed Romanian origin brands on the international markets. Rompetrol brand is associated with its long history of over 40 years, initially as a company representative of the Romanian oil and gas industry on international level, becoming later an international oil group with operations in 12 countries, known as The Rompetrol Group N.V.

In 2014, the Board of Directors of the company passed a resolution whereby the The Rompetrol Group N.V. was renamed into KMG International N.V. Changing the name of the company was part of a strategy to promote the brand KazMunayGas and capitalization of its business. The "umbrella" brand is a prerequisite for strengthening the market position of the group of companies under the brand name KMG both within the country and for its successful entry into the foreign markets.

Although the name was changed into KMG International, Rompetrol brand will continue to be used in the distribution segment of the entire company, being a strong brand both locally and internationally.

The company’s retail network that operates under the “Rompetrol” brand incorporates over 1,100 fuel distribution points in Romania, Georgia, Bulgaria, Moldova, in France and Spain, where the company operates also under Dyneff brand.

The company will continue a selective expansion on core markets and will further optimize its current activity inorder to enhance the Rompetrol brand on the European market; also it will continue to be the most important investment of the State of Kazakhstan on the international market.

Rompetrol was the largest exporter from Romania in 2008, with a total volume of sales on foreign markets over 1.6 billion RON.

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The group is organized into four business units: Refining and Petrochemicals, Retail, Trading, Corporate Development (comprising the Upstream Division, and service companies).

Rompetrol divisions are Rompetrol Petrochemicals, Rom Oil, Rompetrol Downstream and Rompetrol Logistics (together with the subsidiary Rompetrol Gas).

Number of employees in 2009: 9,600.

Activity

Upstream Rompetrol Upstream coordinates drilling, well services and the exploration and production

(E & P Drilling and Well Services-Petros) of The Rompetrol Group in Romania and internationally. Areas of interest and activity focus Black Sea and the Caspian Sea, the Middle East and North Africa.

Refinement

The two refineries of Rompetrol Rompetrol Rafinare (Petromidia, located on the Black Sea in

Năvodari) and Vega (Ploiesti) together cover 32% of Romania's refining capacity. Rompetrol Rafinare is the most modern refinery in Romania, with an installed capacity of processing 4.8 million tons of raw material per year and 3.3 million tons of crude oil processed in 2005. Vega refinery, with an installed capacity of processing 500,000 tonnes per year is a small but flexible refinery that specializes in processing alternative raw materials and producing ecological solvents, bitumen special purpose cleaner fuels for heating and other specialized products.

Downstream

In late 2010, Rompetrol Downstream was operating 788 stations (131 stations, 153 stations

Partner, Expres stations 151 and 353 internal bases) [17].

1.1 Company’s type

Astana, 29th of April - Certain transaction documents were signed today on the establishment of a joint venture between JSC NC "KazMunayGas" (hereinafter - KMG) and China CEFC Energy Company Limited (hereinafter - CEFC).

The equity proportion of KMG and CEFC in newly created joint venture is 49 to 51, respectively.

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1.2 History

• 1974 – Rompetrol is established as the international operator of the Romanian oil industry. • 1993 – Privatized by Management and Employee Buy Out (MEBO) and turnover subsequently

reduced to below $6 million by 1998. • 1998 – Control purchased by a local investor group, thus increasing company capital and

contributing into a substantial turnover growth. • 1999 – Holding company established as The Rompetrol Group N.V.(‘TRG’) in the Netherlands.

First major acquisition: Vega refinery - located in Ploieşti - is bought and doubles its revenues in the first nine months after takeover.

• 2000 – Rompetrol takes over Petros - at that time Romania’s principal oilfield operator. The company has since been renamed Rompetrol Well Services. The Group’s largest acquisition, Petromidia S.A., is also Romania’s largest and most sophisticated oil refinery. Rompetrol committed itself to a sustained modernization process to make Petromidia a state-of-the-art facility in Eastern and Central Europe.

• 2001 – Rompetrol creates Rominserv S.A., Romania’s first Engineering Procurement Construction & Maintenance (EPCM) company focusing on the oil industry.

• 2002 – In 2002, with the newly founded company Rompetrol Petrochemicals in charge, the Petromedia refinery resumed its petrochemicals production.

• 2002 – Rompetrol opens subsidiaries in neighboring Moldova (Rompetrol Moldova) and Bulgaria (Rompetrol Bulgaria).

• 2003 – Rompetrol implemented its comprehensive program of expanding its gas station network in Romania. As part of its strategy the company unified the quality standards for its entire gas station network. To expand its network and make the process of distributing fuel easier, Rompetrol created a network of oil depots in various regions of the country (Arad, Craiova, Șimleu Silvaniei, Zarnesti, Vatra-Dornei, Constanta, Mogosoaia).

• 2004 – Rompetrol Rafinare S.A. is listed on Bucharest Stock Exchange (BVB). • 2004 – KazMunayGas Trading AG (previously Vector Energy AG), specializing in the trade of

oil and petroleum products. • 2005 – Most significant Q1 results ever with net profit reaching $43 million. Rompetrol starts

operations Georgia. • 2005 – The Rompetrol Group N.V. announced the acquisition of 100% in the French company

Dyneff S.A. • 2006 – Rompetrol opens a subsidiary in Ukraine - Rompetrol Ukraine. • 2007 – In August 2007, the Kazakh company KazMunayGas acquired 75% of the Rompetrol

shares from Rompetrol Holding Switzerland[3] • 2008 – Rompetrol and KazMunayGas launched Media Marine Terminal for crude oil in Media

Black Sea port. • 2009 – KazMunayGas takes over the remaining 25% stake in Rompetrol.

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• 2009 – In August 2009, Rompetrol opens its first two fuel stations, on the A2 motorway in Romania, designed as the new premium brand of the group

• 2010 - 2011 – TRG Petrol A.S., the group’s branch was established in Turkey with a view to expand the operations and enter new highly prospective markets.

• 2012 – Completion of Petromidia refinery modernization process following an investment of USD 380 million.

• 2013 – New filling station concept launch. The new filling station concept comprises a modern design that combines 3D elements with color schemes to create a minimalistic, aerial and warm concept.

• 2014 – The Board of Directors passed a resolution whereby the group was renamed into KMG International N.V.

2. Market analysis

The U.S. average retail price of regular gasoline decreased three cents to $3.68 per gallon as of May 5, 2014, 15 cents higher than last year at this time. Prices decreased in all regions of the nation except the Rocky Mountains, where the average rose by two cents to $3.50 per gallon. The largest gasoline price decrease occurred in the Midwest, where prices fell seven cents to $3.60 per gallon. The Gulf Coast price decreased three cents to $3.47 per gallon, while the West Coast price was $4.06 per gallon, down two cents from last week. The East Coast price decreased by a penny to $3.70 per gallon.

Romania has nine crude oil refineries with a total capacity of 467,642 barrels per day (bbl/d), which is among the largest refining capacities in Eastern Europe. Although Romania's refineries operate below capacity, refinery output exceeds domestic consumption allowing the country to export the surplus petroleum products. Romania consumed 216,000 bbl/d of petroleum in 2012.

Oil production in Romania has steadily declined overtime. Total oil production in Romania was 102,000 bbl/d in 2012, down from around 140,000 bbl/d in 2002. Romania has the fourth-largest crude oil reserves in Europe with 600 million barrels of proved reserves as of January 1, 2013.

Dry natural gas production has declined steadily over the past three decades, from its peak of 1.4 trillion cubic feet (Tcf) in 1983 to 375 billion cubic feet in 2012. Romania has 3.7 Tcf of proved natural gas reserves as of January 1, 2013, up from 2.2 Tcf the previous year. Romania is looking to develop a shale gas industry and reduce its reliance on Russian gas supplies. According to IHS Global Insight, imports of natural gas from Russia accounted for 97 percent of the natural gas Romania imported in 2011.

According to a recent EIA study, Romania holds 51 Tcf of technically recoverable shale gas resources. A moratorium on shale gas exploration had been in place, but expired in December 2012 without being renewed. However, public opposition against shale gas exploration remains high. Numerous protests were staged around Romania this year, and could further delay shale gas exploration projects.

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A recent New York Times article stated that Romania has put significant effort to have 24 percent of its energy needs met with renewable energy sources, a goal set by the European Union (EU).

3. Description of the loan

During 2010, Rompetrol concluded a loan agreement with the European Bank for Reconstruction and Development. They agreed for an unsecured corporate loan for a maximum amount of EUR 275.00 million with the purpose of funding an environmental projects program in respect of various operations (upstream, midstream and downstream), dated March 31, 2009, with final maturity date November 16, 2015 (for an amount of EUR 150.00 million) and November 15, 2013 (for the remaining EUR 125.00 million). The drawings as at December 31, 2011 were RON 878.30 million (equivalent of EUR 203.33 million) (December 31, 2010: RON 1,178.33 million, equivalent of EUR 275.00 million).

The HSSE (Health, safety, security and environment) is the Rompetrol department, which is dealing with the protection and safety of the employees. Since 2005, the company invested in standardized process, every health hazard was identified, its risk to the employees’ health was evaluated and appropriate control and recovery measures were determined. They replaced and modernized a big number of equipments and also improve the protective equipment of workers, in order to decrease the number of accidents and deaths. They also made investments in refining area, which were mainly directed to the rehabilitation, and building of storage tanks for crude and oil products and to the revamping of the crude vacuum distillation.

4. Market position of Rompetrol

Romanian Oil&Gas market is continuously evolving, as consumers are more and more demanding. Their needs evolved from basic high quality fuel, services and proximity (2006/07) to more sophisticated – consumers want performing fuel and premium quality services, trustworthy, promt personnel (in 2008). Rompetrol succeeded to establish itself as a strong market player, challenging successfully its main competitors.

Rompetrol holds a strong and growing 228% market share in Romanian Oil&Gas highly competitive and dynamic market, and has become significant player also in the Balkan and Mediterranean markets. Rompetrol is now aiming to become an integrated pan-European oil company. Following the transaction with KazMunayGaz, Rompetrol further expanded its operations towards the East. The Rompetrol Group now represents an important energy bridge between the crude resources from the Caspian Sea to Romania and then further on, into the European Union.

5. Competitors

The main competitors of Rompetrol are:

OMV Petrom is the largest oil and gas group in Southeastern Europe, with activities in the business segments of Upstream, Downstream Gas and Downstream Oil. The Group

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consolidated its position in the oil and gas market following a comprehensive modernization and efficiency increase process. OMV Petrom is the main crude oil producer in Romania and supplies around half of the internal gas production. OMV Petrom supplies gas through the natural gas division. For its sustainable development, OMV Petrom has expanded the gas value chain into power and operates the 860 MW gas fired power plant at Brazi and the Dorobantu 45 MW wind park. OMV Petrom processes crude in the Petrobrazi refinery, near Ploiesti, with a refining capacity of 4.5 mn tons/year. Petrobrazi refinery underwent a EUR 600 mn modernization program between 2010 – 2014, allowing it to process the entire OMV Petrom’s Romanian crude production, while improving energy efficiency and product yields. OMV Petrom is present in the distribution market for oil products in Romania, the Republic of Moldova, Bulgaria and Serbia through a network of approximately 780 filling stations, operated under two brands, Petrom and OMV.

LUKOIL Romania SRL is a major international vertically-integrated oil & gas company, accounting for 2.1% of global output of crude oil. The strong position, which the company enjoys today, is the fruit of 20 years work to expand the reserve base, increasing business scale by seeking out and executing strategic transactions. It is the third largest privately owned oil & gas company in the world by oil production Mol Petroleum Products SRL gas station network comprises more than 126 units, based on the CODO platform (company owned, dealer operated). The business development of MOL Romania has two directions: Greenfield investments and possible acquisitions, and through this MOL is perceived as one of the most dynamic and flexible companies on the Romanian market.

6. SWOT analysis Strengths: - oil and gas reserves - pricing mechanism, similar to that in developed markets - cash flow stable and solid - low level of indebtedness - high growth rate - experienced business units - monetary assistance provided Weaknesses: - prices subject to market gas - environmentally dangerous - investments in research and development - future debt rating - high loan rates are possible Opportunities: - a permanent need for oil - tendency of price increasing in this industry - growing demand - global markets - venture capital - income level is at a constant increase

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Threats: - legislative changes - growing competition and lower profitability - increasing costs - increasing rates of interest - rising cost of raw materials - tax changes

7. Financial analysis of the borrower

The company has an accounting manual that is consistently applied in all Group companies to ensure uniform accounting treatment applied to the same business situations. Group Accounting Manual is regularly updated based on changes in International Financial Reporting Standards.

The individual financial statements of the Company have been prepared in accordance with the provisions of Order no. 1286/2012 for the approval of Accounting Regulations in accordance with International Financial Reporting Standards applicable to companies whose securities are admitted to trading on a regulated market, with subsequent amendments and clarifications.

With the purpose of preparing these financial statements in accordance with legislative requirements in Romania, the functional currency of the Company is considered to be RON ("Romanian Leu").

For the year ended 31 December 2014 and all previous years, Rompetrol prepared the financial statements in accordance with Romanian accounting regulations (local accounting principles) represented by the OMF Order 3055/2009 for the years 2014 and 2013.

The balance sheet is the main document that underpins the economic valuation of the company.

The company's net turnover (sales revenue) increased by 3% in 2014 compared to 2013, totaling 11,249 mln mainly due to the increased level of prices.

The cost of sales (direct distribution expenses + cost of sales) approximately staid the same compared with 2013, reaching 10,830 mln, mainly due to higher costs of purchasing third-party products while the refinery was closed for overhaul planned in 2014.

Rompetrol EBIT totaled 44,841 mln, 77 mil higher than 2013, being the result of favorable oil price environment and of strict cost management measures.

The net financial result of the company fell in 2014, totaling (30) mln to (109) mln in 2013, mainly due to the specific expenses, related interest and penalties for alleged late payment of taxes. The Net profit increased by 3% in 2012 compared to 2011, mainly due to the positive impact of operations.

As a result of activities in fiscal 2014 Rompetrol's contribution to the state budget was 8.075 mn. Income taxes increased by 799 mn, royalties amounted to 815 million lei and social contributions amounted to 384 mn. Rompetrol's contribution to the state budget through indirect taxes was mainly represented by excise and customs duties (3.775 Mill), taxes for employees (399 mn) and VAT (1.805 mn).

On 31 December 2014, the total assets amounted to 2,741 mln, 17% less than the end of 2013 (3,300 mln), mainly due to investments made in 2013.

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Total liabilities = Current liabilities + long-term debt (including provisions and accrued income) decreased by 20% in value of 1,911 mln at 31 December 2014 mainly due to lower interest-bearing liabilities from repayment of loans during 2013.

The Equity of the Company summing 1,230 mln at 31 December 2014 increased by 37% compared to the end of 2013 (900 mln), as a result of the profit generated in the current year partially decreased dividend payment for the year 2013.

8. Credit History

In April 2015 the company KMG International NV (formerly Rompetrol Group NV) has signed a syndicated loan worth 360 million dollars over three years, with a consortium of Romanian Commercial Bank (coordinator), ING Bank, Raiffeisen Bank and UniCredit Tiriac Bank.

9. Credit scoring

According to two criteria:

• Qualitative • Quantitative

Qualitative: The most useful tools when evaluating the quality of business and management are the business strategy, management quality, technology used, the quality and evolution of the competition and the quality of the financial statements that are conducted within the company. Quantitative: - Current ratio: (current assets/current debts): 5 368/1 836= 2.92 >1.5 => Mark 1 - Solvability: (total assets/total debts):38 145/2 377= 16,04 >1.5 => Mark 1 - Operating profit margin: [(operating profit/sales)*100]: (5 662/ 20 596 ) *100= 27.49% >10% => Mark 1 - Interest cover: (operating profit/interest expenses): 5 662/315=17.974 => Mark 1 - Equity ratio: (total equity/total assets):23 438/38 145=0.6144 =61.44% > 35% => Mark 1

Due to the fact that the company is a total Mark 1, it means that is a trustful borrower with profitable activities and good financial activities, having no problem in returning the loan.

10. Risk evaluation

- Industry Risk • limited reserves of crude oil (negligible) • risk of harming the environment (can indirectly affect the company in a very negative

way) - Repayment risk Is not a factor of concern due to the strong finance capabilities of the company. - Management risk After the privatization, the company’s team leaders are very capable people, that have proved their skills and qualities in significant improvements, thus is not a risk of concern.

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- Foreign exchange risk Due to the euro fluctuations, foreign exchange risk is a daily part in the ongoing activities, because the company may lose a big amount of money by paying higher installements.

11. Credit Decision

By analyzing all the facts that have been presented, the Bank approves the investment credit under the following terms and conditions: · Credit type: unsecured corporate loan agreement · Purpose: funding an environmental projects program in respect of various operations (upstream, midstream and downstream), · Amount: EUR 275.00 million · Interest: 7,5 · Contract date: March 31,2009 · Maturity date: November 16,2015 · Other conditions:

- The company will repay the credit through monthly installments plus interest - The company will pay a fee of 0.5% of installments for each day that is behind on payment.

12. References: http://www.rompetrol.ro/en/despre-rompetrol http://www.rompetrol.com/joint-venture-cefc-and-kazmunaygas http://www.rompetrol.com/about-kmg-international https://en.wikipedia.org/wiki/Rompetrol http://www.swotanalysis24.com/swot-r/92458-swot-analysis-rompetrol-group.html http://www.eia.gov/countries/country-data.cfm?fips=ro http://www.eia.gov/oog/info/twip/twip.asp http://markets.ft.com/research/Markets/Tearsheets/Business-profile?s=SNP:BUH http://www.superbrands.com/ro/images/fs08/22rompetrol.pdf Annual Report Rompetrol 2015