S&P assigns Oceanografía B+, wary about corporate governance

Tuesday, June 24, 2008

Standard & Poor's (S&P) has assigned a B+ long-term corporate credit rating to Mexican service company Oceanografía, which serves the oil industry, the agency said in a statement. The outlook is stable.

S&P also assigned a B+ senior secured debt rating for the company's proposed sale of US$375mn in notes. S&P expects an "average" recovery on the proposed issue, or 30-50%.

"The ratings assigned to Oceanografía reflect the issuer's high customer and geographic concentration as well as a heavy capital expenditure budget," S&P credit analyst Juan Pablo Becerra said.

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Oceanografía has had commercial disputes with state oil company Pemex in the past, S&P said.

In addition, Mexico's congress investigated allegations of improper deals between Oceanografía and Pemex but found no evidence of wrongdoing.

Oceanografía is exposed to "swings in the relationship with Pemex" due to economic and political considerations arising from the assignment of large contracts, which "could result in the future loss of business," according to S&P.

While Oceanografía denies any impropriety in its dealings with Pemex, "previous and continuing media coverage and future investigation or administrative litigation could damage its relationship with Pemex."

Pemex CEO Jesús Reyes Heroles denied his company is in any way impeding Oceanografía from winning contracts.

Pemex awarded the company 62 contracts from December 2000-January 2008, Reyes Heroles said before the lower house last week.

Based on 2008 expected revenue, S&P estimates Oceanografía's backlog to be 2.3 years.

S&P also said that though company has made "significant improvements" in corporate governance over the past two years, the area is still weak.

S&P could up Oceanografía's rating if the company can diversify its customer base while maintaining its current backlog and profitability.

Oceanografía provides pipe laying and burial services.

For a full copy of the S&P report, go to this link.