‘Stable’ Santos (ASX:STO) share price falls after first-time Fitch rating

The Santos (ASX: STO) share price is down 1.19% today after global ratings agency Fitch issued it with a first-time rating.

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The Santos Ltd (ASX: STO) share price is falling today after global ratings agency Fitch issued it with a first-time rating.

The Santos share price is down 1.19% at the time of writing, trading at $7.07 per share.

Santos is one of the leading independent oil and gas producers in the Asia-Pacific region, providing energy to homes, businesses and major industries across Australia and Asia.

Fitch Ratings is a leading provider of credit ratings, commentary and research for global capital markets.

What is the Santos Fitch rating?

Fitch Ratings has assigned Santos Limited a first-time rating of ‘BBB’ with a Stable Outlook. The agency has also assigned Santos a senior unsecured rating of ‘BBB’. 

Fitch’s report said fixed-price gas contracts were of immense benefit to Santos’ low credit risk.

Santos’ rating is supported by its position as the second-largest oil and gas producer in Australia, with a large share of domestic gas sales, which are typically on long-term fixed-price contracts that provide it with greater revenue stability than similarly rated peers.

This provides Santos with greater diversification from oil-linked revenue than its peers, providing some earnings stability. This was evident in 2020 when Santos’ average realised domestic gas price fell only 9.8% compared with a reduction of over 33% in its average realised oil and LNG prices.

Fitch considers an upgrade unlikely over the medium term due to the growth projects in the pipeline.

What does Santos’ Fitch rating mean?

Fitch’s credit ratings relating to issuers are an opinion on the relative ability of an entity to meet financial commitments, such as interest, preferred dividends, repayment of principal, insurance claims or counterparty obligations

Fitch’s credit ratings do not directly address any risk other than credit risk

Fitch can issue 11 ratings, spanning from AAA (the lowest expectation of risk) all the way down to RD and D, which signify a restricted default and default rating (bankruptcy) respectively.

Santos’ BBB rating means that the company has a good credit quality. BBB ratings indicate that expectations of default risk are currently low.

Fitch considers Santos’ capacity to pay its financial commitments is adequate, but adverse business or economic conditions are more likely to impair this capacity than they would an A-rated business.

Santos share price snapshot

The Santos share price is up marginally the past week against broader 3% losses over the past month. It’s gained 65% over the past 12 months, beating the energy sector by 44%.

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Motley Fool contributor Lucas Radbourne-Pugh has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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