Bangkok--16 Nov--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed ESSO (Thailand) Public Company Limited’s (ESSO) up to THB12.0bn bills of exchange (B/E) revolving programme at ‘F1(tha)’. Under the programme, the maturity of each series of the B/E will not exceed 270 days.
ESSO’s rating reflects its relatively complex refinery capacity, competitive raw material acquisition, cost competitiveness, and established brand name. The integration of paraxylene (PX) production provides a wider product range and optimisation of product lines, and reduces the volatility of refining margins.
The rating also reflects operational and financial support from the company’s ultimate parent, Exxon Mobil Corporation (ExxonMobil; ‘AAA’/‘F1+’/Stable); ESSO is 66% owned by ExxonMobil. ESSO is able to exploit its parent’s worldwide procurement network for crude oil and refined products, and use ExxonMobil’s technology and engineering services, human resources, and R&D to improve its operational efficiency. The ExxonMobil group has demonstrated strong historical financial support; it provided inter-company loans and credit facilities at commercial terms to ESSO after the 1997 financial crisis, along with a capital injection in 2007.
ESSO’s operating cash flow substantially deteriorated in the 12 months ended September 2010 as a result of squeezed gross refining margin (GRM), product-to-feed margin and lower utilisation rates. This has resulted in slower-than-expected deleveraging in its balance sheet.
ESSO’s earnings are expected to recover in 2011-2012, thanks to the improving demand/supply balance, though its financial leverage measured against cash flow is likely to remain high due to large capex for the EURO IV compliance project. ESSO’s adjusted net debt/operating EBITDAR is expected to increase to around 7.5x in 2010 from 3.2x in 2009 but likely to decline to 4.5x in 2011 and to below 3.5x from 2012.
ESSO’s rating is also underpinned by its high vulnerability to oil prices and GRM fluctuations, and the cyclicality of its PX business. The PX business is expected to continue to be pressured by large excess capacity and expected higher PX production in the industry, following an improvement in refining utilisation, at least until H111. ESSO is also exposed to supply risk as Thailand is highly dependent on foreign oil supplies (although this is mitigated by ExxonMobil’s global network) and single production site risk.
Fitch may take a negative rating action if there is sustained low GRM and petrochemical spreads, an increase in debt-funded investments resulting in sustained high leverage, and weaker ownership and support from the ExxonMobil group.