Bangkok--27 Jul--Fitch Ratings
Fitch Ratings (Thailand) Limited has revised IRPC Public Company Limited’s (IRPC) Outlook to Stable from Negative. Its National ratings have been affirmed at Long-term rating ‘A-(tha)’ and Short-term ‘F2(tha)’. The agency has also affirmed IRPC’s senior unsecured debentures at ‘A-(tha)’.
The revision of Outlook reflects Fitch’s expectation that IRPC’s credit metrics are likely to gradually improve in 2011-2014 and that they would remain at levels appropriate for its current ratings.
Although capex will increase in 2011-2014 to support the company’s expansion plan, Fitch expects IRPC’s adjusted net debt to operating EBITDAR to reduce to 2.5x-3.0x in 2011 from 3.1x in 2010, and remain within 2.0x-3.0x in 2012-2014. This is due to expected stronger operating cash flows as a result of improved industry fundamentals and efficiency gains from IRPC’s capex feeding through to results from 2011. Further, its revised capex plan is more spread-out and better matches the expected recovery of the industry.
Fitch expects the refining industry to continue to gradually improve in H211 and 2012, mainly due to the slower pace of supply growth. IRPC’s olefins and polyolefins businesses are expected to remain under pressure in 2011, but should recover in 2012, again due to the improving demand-supply balance.
IRPC’s ratings are underpinned by its competitive advantage as a fully integrated oil refining and petrochemicals producer, and its expertise and long track record in downstream petrochemical products in Thailand. IRPC’s vertical integration provides cost advantages, a broad product range and reduced earnings volatility relative to non-integrated operators.
IRPC also benefits from cost savings gained through cooperation with PTT Public Company Limited (PTT, ‘AAA(tha)’/Stable), its largest shareholder — especially on procurement of feedstock and product swaps. Nevertheless, IRPC’s operational overlap and integration with the PTT group remain limited due to its independent and fully integrated facilities and is hence rated on a stand-alone basis.
IRPC’s credit profile is constrained by its vulnerability to oil prices, volatile gross refinery margins (GRM) and petrochemical prices, which can significantly affect its earnings and cash flow generation. The ratings also take into account the company’s aggressive investment plan, and its reliance on exports due to Thailand’s excess capacity in polymers (about 48% of the country’s exports in 2010). Furthermore, IRPC is also exposed to supply risks associated with crude oil, as Thailand is highly dependent on imported oil.
A sustained increase in leverage, as measured by adjusted debt net of cash to operating EBITDAR, to over 3.25x due to persistent low GRM and petrochemical spreads, and/or higher-than-expected debt-funded investments, can result in negative rating action. Conversely, the ratings may be upgraded if IRPC can maintain leverage below 2.5x on a sustained basis, or if there is a strengthening of operational and strategic linkages with PTT.