Fitch affirms Petroleos de Venezuela

Fitch Ratings said it affirmed Petroleos de Venezuela SA's local- and foreign-currency issuer default ratings at BB- and its national scale rating at AAA(ven).

The outlook is stable.

Petroleos de Venezuela's foreign and local currency issuer default ratings are constrained by the BB- foreign-currency rating of the Bolivarian Republic of Venezuela and are strongly linked with the sovereign's credit profile. Fitch said the linkage is based on the company's nature as a state-owned entity, the shareholder's ultimate ability to restrict Petroleos de Venezuela's financial flexibility and use of the company's financial resources for quasi-sovereign and fiscal, rather than productive capacity, uses.

The agency said the company's credit metrics are strong for the rating category, characterized by low leverage and high interest expense coverage. At the end 2005, Petroleos de Venezuela a total debt-to-EBITDA ratio of 0.2x.

However, the ratings are tempered by substantial redirection of financial resources to government spending. It is estimated that the company transferred approximately $27.4 billion to the Venezuelan government in form of income tax payments, royalties, dividends and other contributions to social spending, Fitch said.

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