S&P puts Santos on negative watch

Standard & Poor's said it placed its BBB+ long-term corporate credit rating on Santos Ltd. and Santos' related debt issues on CreditWatch with negative implications. The CreditWatch action follows Santos' announced hostile bid for Queensland Gas Co. The cash offer of A$1.26 per share values Queensland Gas at A$606 million.

The ratings affected include Santos' corporate credit rating of BBB+/A-2, senior unsecured local-currency rating of BBB+, preference stock local-currency rating of BBB- and commercial paper local-currency rating of A-2.

The negative watch reflects the likelihood of a weakening of Santos' financial profile after the acquisition and uncertainty on Santos' strategy to restore its capital structure to a more appropriate level, S&P said. If the bid proceeds, Santos' capital structure is expected to weaken, with net debt to net debt plus equity likely to exceed its target of 45%.

The agency said that Santos has indicated it plans to refinance the debt facility for the acquisition consistent with maintaining a BBB+ credit rating.

The A2 short-term rating is supported by the company's strong liquidity, underpinned by the stable nature of its contracted gas cash flow and the highly liquid commodity nature of its oil assets and production, S&P said. On July 31, the company had cash and cash equivalent of A$251.3 million, undrawn committed bank facilities of A$700 million and A$205.3 million of debt maturing in the rest of 2006.

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