Fitch turns negative on Taiwan’s CPC

Fitch Ratings has revised the outlook on CPC Corporation, Taiwan’s long-term foreign-currency issuer default rating to negative from stable, while affirming the rating at AA.

The agency also affirmed CPC’s national long-term rating at AAA(twn) with a stable outlook, as well as its senior unsecured rating at AAA(twn).

The outlook revision reflects uncertainty over CPC’s ability to restore interest coverage above 4.0x, amid higher oil prices and limited cost pass-through. Further negative rating action could follow if improvement is slower than expected, for example due to prolonged supply disruptions or continued constraints on passing through costs.

Fitch equalises CPC’s long-term issuer rating with that of Taiwan, which fully owns the company, under its government-related entities criteria.

CPC’s national long-term rating sits at the top end of Fitch’s domestic scale, indicating low default risk relative to other Taiwanese issuers.

CPC’s standalone credit profile is assessed at bb-, 10 notches below Taiwan’s issuer rating. Any further weakening would result in downward adjustment under Fitch’s criteria.

Fitch assesses the company’s status, ownership and control as very strong, reflecting significant government influence over management appointments, financing and investment plans. CPC plays a strategic role in Taiwan’s energy policy, including increasing the share of natural gas in power generation and supplying gas and refined products to a tightly regulated domestic market.

The agency views precedents of government support as strong, noting past direction to state-owned banks to extend substantial loans and credit facilities when CPC incurred losses due to regulatory under-recovery. The Ministry of Economic Affairs has also announced a TWD350bn ($11.1bn) equity injection package for 2027–2030 and TWD300bn of credit support from state-owned banks, although the equity injection remains subject to approval by the Legislative Yuan.

Fitch assesses the incentive for support as very strong, given CPC’s role as Taiwan’s sole gas supplier and dominant refined-oil provider, as well as its mandate to maintain strategic oil reserves. A default would pose risks to energy security and could disrupt funding access for other government-related entities.

The agency expects CPC’s refining, marketing and petrochemical businesses to post significant losses in 2026, as cost pass-through remains constrained by its policy role in maintaining domestic price and supply stability. Operating performance in these segments is expected to recover only after crude oil prices decline from elevated levels following the Iran crisis.

By contrast, CPC’s natural gas segment is expected to remain resilient, supported by largely adequate cost pass-through and higher sales volumes. Gas selling prices for power generation users rose by more than 40% in April 2026, signalling government willingness to support margins. Expansion of LNG terminals completed in 2025 is expected to support further volume growth, while profitability may also benefit from a normalisation in input costs over the medium term.

Fitch expects CPC’s financial metrics to weaken in 2026 before improving gradually over 2027–2029. EBITDA net leverage has remained consistent with the ccc category for several years and is likely to stay elevated without meaningful government capital support and improved cost pass-through. EBITDA interest coverage is forecast to decline to 2.3x in 2026 from 2.6x in 2025, before recovering to 5.2x by 2028 as margins improve.

The company is expected to fund its government-mandated capital expenditure programme largely through debt, including investment in natural gas infrastructure and petrochemical upgrades.

Fitch maintains CPC’s standalone credit profile at bb-, supported by its leading domestic market position and diversified operations, but constrained by high leverage following years of regulatory under-recovery and the recent oil price shock. These constraints are mitigated by strong financial flexibility, underpinned by support from Taiwan’s domestic financial system. Downward pressure could emerge if profitability improvements are delayed.

Fitch compares CPC with regional peers whose ratings are aligned with their respective sovereigns, including Taiwan Power Company, Korea Gas Corporation, PT Pertamina and CNOOC Limited. It assesses CPC’s government support characteristics as broadly similar to those peers, reflecting strong state involvement in financing, investment decisions and operational oversight.