Bangkok--4 Nov--Fitch Ratings
Fitch Ratings (Thailand) has affirmed ESSO (Thailand) Public Company Limited’s (ESSO) bills of exchange (B/E) revolving programme of up to THB12bn at ‘F1(tha)’. Under the programme, the maturity of each series of B/E is no more than 270 days.
The rating reflects ESSO’s complex refinery capacity, cost-effective procurement of raw materials via its parent’s - Exxon Mobil Corporation (ExxonMobil; ‘AAA’/Stable/‘F1+’, 66% ownership) sourcing network and its established brand name. It also reflects the benefits of vertical integration between paraxylene (PX) production and its refinery by broadening its product range, optimising its product lines, and reducing the volatility of refining margins.
The rating also reflects operational and financial support from ExxonMobil group. ESSO benefits from its parent’s worldwide procurement network for crude oil and refined products, and uses ExxonMobil’s technology and engineering services, human resources, and R&D to improve operational efficiency. ExxonMobil group has provided tangible support to ESSO, including credit facilities at commercial terms after the 1997 Asian financial crisis and a capital injection in 2007.
Fitch expects ESSO’s leverage, as measured by adjusted net debt to operating EBITDAR, to fall to 3.8x in 2011 from 6.2x in 2010, and to below 3.25x from 2012 onward. This is due to expected stronger operating cash flows as well as a significant reduction of capex after the completion of EURO IV’s compliance project in 2011.
ESSO’s credit profile is tempered by its vulnerability to oil prices, volatile gross refining margins (GRM) and petrochemical product-to-feed margins, which can significantly affect its earnings and cash flow generation. 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.
Sustained low GRM and petrochemical spreads, an increase in debt-funded investments resulting in sustained high leverage, or weaker ownership and support from ExxonMobil group could negatively affect ESSO’s rating. Conversely, further improvement in profitability and earnings stability through the cycle and sustained low financial leverage, would be positive for the rating.
Contacts:
Primary Analyst
Ekapan Prompraphant
Analyst
+66 2655 4753
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan
Bangkok 10330
Secondary Analyst
Lertchai Kochareonrattanakul
Senior Director
+66 2655 4760
Committee Chairperson
Buddhika Piyasena
Senior Director
+65 6796 7223