Bangkok--20 Dec--Fitch Ratings
Fitch Ratings (Thailand) Limited has today revised the Outlook on PTT Plc's ("PTT") National rating to Positive from Stable, based on the company's stronger-than-expected earnings performance due to the rising oil prices and expectations that PTT will use its surplus cash to reinforce its core business while maintaining a conservative financial profile. At the same time, the agency has affirmed the National ratings at Long-term 'AA+(tha)' and Short-term 'F1+(tha)' and the National ratings on PTT's outstanding debentures amounting to THB34 billion at Long-term 'AA+(tha)'.
The ratings reflect PTT's dominance of the gas and oil business in Thailand, its strategic importance and its function as a policy vehicle for Thailand's energy security and development. The ratings also reflect its strong government ownership and support, and good track record of its senior management team. PTT enjoys a natural monopoly in the gas transmission and distribution business through its established network and secured demand via long-term sale contracts with major customers, and thanks in part to high entry barriers due to the capital-intensive nature of the business. Through its exploration and production subsidiary PTT Exploration and Production ("PTTEP"), PTT is one of the major exploration and production companies in Thailand, with the largest reserves and the second-largest production. The ratings also reflect PTT's strong and stable cash flow generation capability. The performance of its gas business, which accounts for about 90% of its consolidated EBITDA, is relatively stable, thanks to long-term sales agreements, a cost-plus pricing structure and generally less volatile gas prices compared to oil prices.
Thailand's strong economic recovery, the higher oil prices as well as the continued growth in gas demand, are supporting PTT's strong operating performance in 2004. PTT's consolidated EBITDA continued to improve to THB62.4bn (up 15% year-on-year) in 2003 and to THB58.6bn (up 24% yoy) in the first nine months of 2004. PTT's financial position also remained strong at end-9M04 despite significant capital expenditure and an increase in working capital requirements. Including its short-term investments, PTT's adjusted consolidated net debt-to-annualised EBITDA ratio remained flat at 1.0x at end-9M04. Meanwhile, EBITDA interest coverage increased to 9.7x in 9M04 from 7.7x in 2003.
The ratings also take into account PTT's significant capital expenditure plans, commodity price and forex exposure, regulatory and political risks. PTT's capital expenditure during 2004-2008 has now been revised up to THB171bn from THB154bn in May 2004. The capital expenditure has been largely focused on the gas business as well as joint ventures in petrochemicals, with an aim to strengthen PTT's gas value chain. Although debt-funded investments have increased, PTT's financial leverage should remain low over the next three years. Nevertheless, if PTT invests in Thai Petrochemical Industries ("TPI"), its financial leverage may increase significantly, which could affect the ratings.
PTT was partially privatised and listed on the SET in 2001. Nevertheless, Thailand's Ministry of Finance still holds a 52% stake in PTT and is expected to retain a majority stake in the long-term. PTT holds a 65% stake in PTTEP.
A full rating report on PTT is available on the agency's website www.fitchratings.com.