Bangkok--31 Jan--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Thai Oil Public Company Limited’s (TOP) National Long-term rating at ‘AA-(tha)’, National Short-term rating at ‘F1+(tha)’, and National Long-term rating on its senior unsecured debentures at ‘AA-(tha)’. Simultaneously, the agency has revised the Outlook on the Long-term rating to Stable from Negative.
The Outlook revision reflects Fitch’s expectation that TOP’s financial leverage (measured by adjusted net debt/operating EBITDAR) is likely to fall to around 1.0x by 2011 (2009: 1.8x), although de-leveraging was slightly lower-than-expected in 2010. TOP’s capex is likely to be moderate over 2011-2012, while its cash from operations should improve.
The agency notes that TOP’s operating environment is on the recovery track. The refining industry is expected to recover in 2011 from the bottom of the cyclical trough in 2009. Fitch expects the paraxylene business to remain under pressure in H111 and gradually recover in H211, thanks to the start-up of new purified terephthalic acid (PTA) plants. Also, the government policy to acquire more LPG from local refineries to limit LPG imports will improve TOP’s gross refinery margin (GRM) by at least USD1 per barrel.
TOP’s ratings reflect its large scale, highly complex production capacity and cost competitiveness. It has maintained strong cost competitiveness relative to its peers in the region. TOP also has strategic and operational links to PTT Public Company Limited (PTT, ‘AAA(tha)’/Stable) as its major refinery, although these ties are not strong enough to warrant any ratings uplift, given PTT’s 49.1% stake.
The company’s forward integration into aromatics, lube base oil and solvent businesses has broadened its exposure to the oil value chain, and reduces margin volatility. Meanwhile, its investment in the power sector should help partially to offset the cash flow volatility of the refining business, although power’s contribution to EBITDA is relatively small.
TOP’s credit profile is tempered by its high vulnerability to oil prices and GRM fluctuations, as well as the cyclicality of its petrochemical business. Other credit concerns relate to its high customer concentration (PTT) and its exposure to both a single production site and a single market, although the customer concentration factor is partly mitigated by the fact that the largest off-taker, is the main oil marketing and trading company in Thailand and, at ‘AAA(tha)’, is highly rated. TOP is also exposed to supply risk, as Thailand is highly dependent on foreign oil supplies.
Negative ratings triggers include a sustained low GRM and petrochemical spreads and an increase in debt-funded investments resulting in sustained adjusted net debt/operating EBITDAR above 1.0x. A positive rating action is unlikely in the medium term, due to the relatively strong rating and key constraints on this rating, including scale and single-asset refiner.
Contacts:
Primary Analyst
Lertchai Kochareonrattanakul
Senior Director
+66 2655 4760
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan,
Bangkok 10330, Thailand
Secondary Analyst
Ekapan Prompraphant
Analyst
+66 2655 4753
Committee Chairperson
Steve Durose
Senior Director
+61 2 8256 0307