กรุงเทพฯ--27 มิ.ย.--Fitch Ratings
Fitch Ratings (Thailand) has affirmed PTT Global Chemical Public Company Limited's (PTTGC) National Long-Term Rating at 'AA(tha)', National Short-Term Rating at 'F1+(tha)', and the National Long-Term senior unsecured rating at 'AA(tha)'. The Outlook is Stable.
KEY RATING DRIVERS
Leverage Remains Low: Fitch expects PTTGC's leverage, as measured by funds flow from operations (FFO)-adjusted net leverage, to improve to 1.2x in 2016 (2015: 1.4x), supported by improving operating cash flow, including lower working capital requirement due to low oil prices. We expect the company to be able to maintain its leverage below 1.5x over the medium term. However, significantly higher-than-expected capex might push the company's leverage above 1.5x.
Large but Flexible Capex: Fitch expects PTTGC to finance its committed capex of USD1.7bn for 2016-2020 via internal cash generation. The company has additional uncommitted capex of USD4.5bn in its five-year investment plan, although this spending can be deferred if market conditions weaken. The company is undertaking feasibility studies for three key projects, including the US petrochemical complex, which might require a sizeable investment cost if the company proceeds with the project. Fitch has factored in 50% of company's uncommitted capex in its projections through 2020.
Fully Integrated, Low-Cost Producer: PTTGC is Thailand's largest fully integrated petrochemical and refining company. It has a wide product range, and benefits from its large operating scale. Feedstock costs are competitive, as most of its feedstock for olefins is gas based, which is available domestically, and cheap relative to naphtha, which is used by its competitors. However, this advantage has diminished in the current low oil price environment.
PTTGC also benefits from a favourable feedstock supply arrangement with its major shareholder, PTT Public Company Limited (PTT, AAA(tha)/Stable), which reduces margin volatility when market conditions fluctuate. These have led PTTGC to have the most stable cash-flow generation and highest margins among domestic petrochemical and refining peers.
Highly Cyclical Business: PTTGC's credit profile is tempered by its vulnerability to the highly cyclical petrochemical sector and fluctuations in refining margins and crude oil prices, which can result in volatile margins and operating cash flow.
Linkages with PTT: PTTGC's rating benefits from a one-notch uplift, reflecting its strategic importance to - and operational links - with PTT. Some of the benefits from its association with PTT, such as feedstock supply, are incorporated in the assessment of its standalone credit profile.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- crude oil prices (Dubai) of USD40 per barrel in 2016, USD50 per barrel in 2017, USD60 per barrel in 2018, and USD70 thereafter, with PTTGC's crude procurement costs adjusted for applicable discounts/premiums
- refining margins to soften in 2016 due to pressure from expected additional refining capacity and excess supplies of diesel from China
- aromatics spread to pick up in 2016 from 2015 but remain weak
- HDPE spread over naphtha to remain high in 2016
- USD1.7bn of committed capex and additional 50% of USD4.5bn uncommitted capex through 2020
- dividend payout rate of 45% of net income
RATING SENSITIVITIES
Positive: Developments that may, individually or collectively, lead to positive rating action include:
- evidence of stronger ties with PTT
- a positive rating action on the company's standalone rating is unlikely in the medium term, given PTTGC's large capex plans and long lead times in cash generation from these investments.
Negative: Developments that may, individually or collectively, lead to negative rating action include:
- weakening of linkages with PTT
- a sustained increase in FFO-adjusted net leverage to above 1.5x due to large debt-funded investments and/or persistently thin refining margins and petrochemical spreads. Fitch will treat a commitment to any significant debt-funded project as a rating event.