The Santos Ltd (ASX: STO) share price is edging higher on Wednesday. This comes after the energy giant received an investment-grade credit rating from Moody's Investors Service.
At the time of writing, Santos shares are swapping hands for $6.56, up 0.46%.
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Moody's assigns rating to Santos
Investors are showing little regard to the company's latest news, sending the Santos share price almost nowhere today.
According to its release, Santos advised that Moody's assigned a Baa3 credit rating with a stable outlook.
This follows other agencies, such as Fitch Ratings, slapping on a BBB credit rating with a stable outlook on Santos. In addition, S&P Global Ratings graded a BBB- credit rating with a stable outlook.
Bond rating agencies are firms that evaluate the creditworthiness of both the debt securities and the issuing company. These agencies provide ratings, commentary and research on businesses. Investment professionals then use the ratings to determine the likelihood of the debt being repaid.
Bond ratings range from an investment grade of 'AAA', meaning a very strong capacity to meet financial commitments and minimal credit risk. The speculative grade of 'C' or 'D' indicates likely payment default on financial commitments and bankruptcy.
It's worth noting that the B ratings are in the mid-range of the bond credit ratings, meaning "adequate capacity to meet financial commitments, moderate credit risk".
The investment credit grade was issued based on Santos' merger with peer Oil Search Ltd (ASX: OSH). The scale of operations is expected to accelerate, particularly in key markets. This includes geographic presence across Australian hydrocarbon basins and increased exposure to low-cost liquefied natural gas (LNG) production.
Santos managing director and CEO Kevin Gallagher commented:
Santos' investment grade credit ratings provide access to a broad range of liquid global debt capital markets and this new Moody's rating is further evidence of the stronger balance sheet created by the merger.
Our disciplined operating model is focussed on maintaining a strong balance sheet and generating free cash flow through improvements in productivity and maintaining discipline in capital expenditure through the cycle.
About the Santos share price
In the past 12 months, the Santos share price has struggled as COVID-19 put the global economy at a standstill. The company's shares are up 2.66% from this time last year, and up almost 5% year to date.
Based on today's price, Santos presides a market capitalisation of roughly $13.66 billion, with approximately 2.08 billion shares on issue.
