Fitch: Nippon, SK not affected by alliance

Fitch Ratings said Nippon Oil Corp.'s and SK Corp.'s ratings are not immediately affected by the announced comprehensive strategic alliance. The agency also notes that if the planned alliance brings the expected capacity utilization and cost performance improvements, it will strengthen both companies' bargaining power in the increasingly challenging global energy markets.

The ratings on Nippon Oil are long-term foreign- and local-currency issuer default ratings of BBB with a stable outlook. SK's long-term issuer default rating is BBB- with a negative outlook and short-term rating of F3.

On Jan. 22, the companies announced that they will be engaged in a strategic alliance, aimed at joint global expansion and cost reduction. Both companies have seen their margins eroding, as they have not been able to benefit from the crude oil price hike, being the late entrants into the upstream exploration and production business, Fitch said and Japanese refineries suffer at times from the underutilized capacity as general demand is declining.

The agency said the cost savings benefits are expected from the economies of scale as joint initiatives in crude oil exploration, transportation and trading, as well as in growing petrochemical, lubricants and research areas could bring unit costs down.

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