Bangkok--20 Oct--Fitch Ratings
Fitch Ratings (Thailand) Limited has upgraded PTT Aromatics and Refining Public Company Limited's (PTTAR) and PTT Chemical Public Company Limited's (PTTCH) ratings and simultaneously withdrawn them. The withdrawal follows the recent amalgamation between PTTAR and PTTCH and the incorporation of the newly merged entity, PTT Global Chemical Public Company Limited (PTTGC), to which ratings have also been assigned. A full rating breakdown is provided below.
The ratings of PTTGC reflect, post merger, its increased 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. Fitch also views that the amalgamation will strengthen PTTGC's operational and strategic links with parent PTT Public Company Limited (PTT, 'AAA(tha)'/Stable).
The ratings also reflect Fitch's expectation that PTTGC's credit metrics will improve in 2011 and 2012. PTTGC's adjusted net debt/operating EBITDAR is expected to decrease to 2.1x in 2011 from pro-forma 3.2x in 2010 and to below 1.5x from 2012 onward, supported by moderate capex and expected higher operating cash flow. As PTTGC will need to focus on business integration and ramping up its new capacity, significant investments in 2011-2012 are unlikely. Meanwhile, operating cash flow is expected to improve in 2011-2012, due to volume growth from new capacity and improving petrochemical and refining markets.
PTTGC's rating is notched up one level from its standalone rating to reflect increased strategic importance and operational linkage with PTT under Fitch's parent and subsidiary rating linkage criteria. With the merger, PTTGC becomes a major offtaker of both gas products and condensate. The consolidation also allows PTT to cast PTTGC as its petrochemical flagship for expanding its petrochemical business locally and internationally. Although operational links with PTT are little changed from prior to merger, the large size of the new entity has increased its strategic importance to PTT by making PTTGC the largest earnings contributor among its downstream affiliates. For H111, PTTGC contributed 14% of PTT consolidated net income.
PTTGC's credit profile is constrained by its vulnerability to the cyclicality of the petrochemical and refinery business, resulting in volatile margins and operating cash flow generation. PTTGC is exposed to supply risk, as Thailand is highly dependent on foreign oil supplies. It is also exposed to production concentration and single market risk, as most of its operations are concentrated in Thailand. Its olefins, aromatics and refined products are mainly supplied to the domestic market.
PTTAR's ratings
National Long-Term rating upgraded to 'AA-(tha)' from 'A-(tha)', off Rating Watch Positive (RWP); assigned Stable Outlook, and withdrawn
National Short-Term rating upgraded to 'F1+(tha)' from 'F2(tha)', off RWP, and withdrawn
Senior unsecured debentures upgraded to 'AA-(tha)' from 'A-(tha)' off RWP, and withdrawn
PTTCH's ratings
National Long-Term rating upgraded to 'AA-(tha)' from 'A+(tha)'; assigned Stable Outlook, and withdrawn
National Short-Term rating upgraded to 'F1+(tha)' from 'F1(tha)', and withdrawn
Senior unsecured debentures upgraded to 'AA-(tha)' from 'A+(tha)', and withdrawn
PTTGC's ratings
National Long-Term rating assigned at 'AA-(tha)', Outlook Stable
National Short-Term rating assigned at 'F1+(tha)'
Senior unsecured debentures' National Long-term rating assigned at 'AA-(tha)'