Bangkok--25 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has placed PTT Aromatics and Refining Public Company Limited's (PTTAR) 'A-(tha)' National Long-term rating, 'F2(tha)' National Short-Term Rating, and the 'A-(tha)' rating on its senior unsecured bonds on Rating Watch Positive (RWP). The agency has simultaneously affirmed PTT Chemical Public Company Limited's (PTTCH) 'A+(tha)' National Long-Term Rating, 'F1(tha)' National Short-Term Rating, and the 'A+(tha)' rating on its senior unsecured bonds. The rating Outlook for PTTCH is Stable. The rating actions follow the announcement by PTTAR and PTTCH on 25 February 2011 that the two companies have reached an agreement to merge their operations.
The rating actions reflect the proposed amalgamation of PTTCH and PTTAR, which will involve an exchange of common shares between the shareholders of PTTCH and PTTAR, with no share acquisition or capital injection from either party. Following the merger, the shareholding of PTT Public Company Limited (PTT) -- the major shareholder -- in the merged company is likely to be similar to that of PTTCH and PTTAR before the merger at around 49%.
The amalgamation will result in more product and feedstock diversification, larger operating scales, enhanced market position and growing opportunity for business expansion. Fitch expects immediate synergies from product and by-product exchange, and, over the medium term, from product optimisation across the integrated production process. Although the amalgamation will lead to weaker credit metrics (relative to those of PTTCH), Fitch expects the credit metrics of the merged company to improve in 2011-2012, due to moderate capex plan and expected higher operating cash flows from increased production at new capacities and improving petrochemicals and refinery markets.
The merged company will assume all assets, debts, obligation and liabilities of PTTCH and PTTAR. Pro forma 2010 adjusted net debt to operating EBITDAR for the merged company was 3.2x (PTTCH: 1.8x, PTTAR: 4.7x). Fitch expects the net leverage of the merged company to fall to around 2.0x in 2011 and below 1.5x from 2012 onwards. Fitch expects to rate the merged company 'A+(tha)', if the proposed amalgamation is in line with the projections and there are no significant changes in PTTCH's and PTTAR's operations and capex plans. The final ratings are subject to the outcome of the approval process, costs associated with the transaction, and any changes in expectations for the merged company's future financial performance and capex plan.
PTTAR is placed on RWP to reflect the expected strengthening of its business and financial profile following the proposed amalgamation. Meanwhile, the affirmation of PTTCH's ratings reflects Fitch's expectation that the company's weaker credit metrics will be offset by the better business position post merger and the credit metrics of the merged company will improve in 2011-2012.
The transaction would be subject to the approval from the regulatory authorities, as well as shareholder approval and creditor's consent from both companies. Fitch expects to resolve the Rating Watch on PTTAR upon the completion of the merger, after which the ratings of PTTCH and PTTAR will be withdrawn, and new ratings will be assigned to the merged company.