Bangkok--28 Nov--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed Bangkok Aviation Fuel Services Public Company Limited’s (BAFS) National Long-Term Rating at ‘A+(tha)’ and its National Short-Term Rating at ‘F1(tha)’. The Outlook is Stable.
KEY RATING DRIVERS
Dominant Market Position: The ratings of BAFS reflect its dominant position in Thailand’s aviation fuel service market. BAFS is the sole operator of the fuel depot and hydrant network at Suvarnabhumi Airport, the country’s largest international airport. It is also the major into-plane fuelling service provider at the airport, with an 87% market share. The company faces limited competition, and benefits from high barriers to entry due to the required operating concessions.
Expected Demand Recovery: Fitch expects BAFS’s uplift volume (the amount of fuel supplied to aircraft) to increase about 5% in 2015 and about 4% a year over the medium term, compared with an expected decrease of 2% in 2014. This should be supported by the easing political climate and continued recovery in the local and global economies. More air traffic is also likely to be driven by economic integration in south-east Asia under the ASEAN Economic Community, which is due to start in December 2015.
Limited Exposure to Oil Prices: BAFS is insulated from the volatility of fuel prices as its revenues are derived solely from fuelling service fees, while fuel is sold by oil companies to airlines. BAFS’s major cost is its pre-agreed concession fee, which means that profitability is stable.
Large Rating Headroom: Aside from capex relating to its on-going projects, which are not material, the company is considering a potential large investment in a multi-product pipeline. BASF’s current low financial leverage - FFO net adjusted leverage of around 1.0x - provides reasonably large headroom to accommodate additional capex beyond what is committed. However, its ratings may come under pressure if a large investment is not adequately equity funded, such that its credit metrics are not commensurate with the current rating level for a sustained period.
Rating Sensitivities
Positive: Future developments that may, individually or collectively, lead to positive rating
action include:
- Larger operating scale and more diversity of operations, though both are unlikely over the next 12 to 18 months
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Large debt-funded investments or high dividend payouts leading to an increase in FFO-adjusted net leverage to above 2.0x on a sustained basis