Fitch Expects to Rate ENAP's USD500MM Proposed Debt Issuance 'A'

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SANTIAGO, Chile & BUENOS AIRES, Argentina--(BUSINESS WIRE)-- Fitch expects to assign an 'A' international scale rating to Empresa Nacional del Petroleo's (ENAP) USD500 million proposed senior unsecured debt issuance, with a Stable Outlook. Proceeds from the 10-year notes will be used to refinance ENAP's debt.

The expected rating is equivalent to Fitch's rating on ENAP's outstanding senior unsecured debt. ENAP's foreign currency Issuer Default Rating (FC IDR) is 'A'. ENAP's ratings reflect its ownership by the Chilean government, the company's strong legal, operational and strategic ties with the state, and its strategic importance to assure the country's energy supply. As a state-owned company, ENAP's FC IDR is strongly linked with the credit profile of the Chilean sovereign (FC IDR 'A+', Stable Outlook by Fitch), although direct financial support provided by the Government has been limited. The Republic of Chile does not guarantee any of ENAP's indebtedness.

ENAP's high leverage is unsustainable with the current rating absent the perception of strong government support; ENAP's debt levels have increased during 2008-2010 with limited direct government fiscal support. Given the company's weak financial profile and that it may be negatively affected by its shareholder's interest to ensure ENAP continues to supply local demand regardless of the financial consequences, on a stand-alone-basis ENAP would be internationally rated well below the Republic of Chile. Any weakening of legal, operational and/or strategic ties with the government could put downward pressure on the ratings.

As of September 2011, net debt was stable at USD3.3 billion of which 30% or USD0.9 billion was concentrated in the short term. Proceeds from the proposed USD 500 million debt issuance are expected to be used to finance debt maturing during the next 12 months; total net debt levels will not change. Over the medium term, the company will maintain a high leverage for its rating category (higher 6x debt-to-EBITDA ratio), but the ratings continue to reflect a strong parent support.

As of September 2011, the latest 12 months (LTM) EBITDA was USD575 million, a significant increase from USD404 million as of December 2010, which mostly reflects the improvement in global refining margins. However, the decrease in global refining margins during the second half of 2011 will impact the fourth quarter performance, resulting in year-end EBITDA similar or higher than 2010's.

ENAP is Chile's leading hydrocarbon company, with its core business in refining with small-scale E&P operations both domestically and abroad. The company has three refining plants (Aconcagua, Bio Bio, and Gregorio) and produces and sells fuel in the local market, as well as exports a small portion of its production. ENAP is 100% owned by the state of Chile.

Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.

Applicable Criteria and Related Research:

--'Corporate Rating Methodology', dated Aug. 12, 2011;

--'Rating Oil and Gas Exploration and Production Companies', dated April 5, 2011;

--'Rating Public Sector Entities', date Feb. 1, 2007;

--'Parent and Subsidiary Rating Linkage', dated Ago, 12, 2011.

Applicable Criteria and Related Research:

Parent and Subsidiary Rating Linkage

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647210

Ratings of Public Sector Rating Entities - Outside the United States

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=611486

Rating Oil and Gas Exploration and Production Companies

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=645090

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