Bangkok--26 Jan--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed Thai Oil Public Company Limited’s (TOP) National Long-Term rating at ‘AA-(tha)’, National Short-Term rating at ‘F1+(tha)’, and National Long-Term rating on its senior unsecured debentures at ‘AA-(tha)’. The Outlook is Stable.
“The affirmations of TOP’s ratings reflect Fitch’s view that, despite an increase in capex, the company can maintain its financial profile appropriate for its current ratings. Once capex recedes, the agency expects TOP to maintain its leverage, as measured by adjusted net debt to operating EBITDAR, at around 1.0x from 2013,” said Lertchai Kochareonrattanakul, Senior Director with Fitch’s Corporates team. Fitch expects TOP’s capex to be primarily funded by operating cash flow. The higher capex however will reduce TOP’s rating headroom.
TOP’s ratings reflect its relatively large scale, highly complex production capacity and its cost competitiveness. Continuous improvement in efficiency and an increase in higher value products have helped it maintain its competitive position. Also, TOP has maintained strong cost competitiveness relative to its peers in the region. Fitch notes that it has strategic and operational links to PTT Public Company Limited (PTT, ‘AAA(tha)’/Stable) as its major refinery. Some of these benefits have been incorporated into TOP’s stand-alone credit profile. However, Fitch has not provided a specific uplift to TOP’s rating after taking into account PTT’s 49.1% stake and the moderate rating linkages between the two companies.
The company’s forward integration into the aromatics, lube base oil and solvent businesses has broadened its exposure to the oil value chain, and reduces margin volatility. Meanwhile, its investment in the power sector should partially offset the cash flow volatility of its refining business, although power’s contribution to EBITDA is very limited.
TOP’s credit profile is tempered by its high vulnerability to oil prices and refining margin fluctuations, as well as by the cyclicality of its petrochemical business. Other credit concerns relate to its exposure to both a single production site and a single market. High dependence on PTT for sales (42% of petroleum product sales in 9M11) is partly mitigated by PTT’s strong credit profile and by its position as Thailand’s main oil marketing and trading company. Also, TOP is exposed to supply risk as Thailand is highly dependent on foreign oil supplies.
Factors that could negatively affect TOP’s ratings include sustained low refining margins and thin petrochemical spreads, as well as an increase in debt-funded investments resulting in sustained adjusted net debt to operating EBITDAR above 1.25x. A positive rating action is unlikely in the medium term given that key constraining factors of its ratings (limited scale and single-asset operations) are unlikely to improve materially.
Contacts:
Primary Analyst
Lertchai Kochareonrattanakul
Senior Director
+66 2655 4760
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan,
Bangkok 10330, Thailand
Secondary Analyst
Ekapan Prompraphant
Analyst
+66 2655 4753
Committee Chairperson
Buddhika Piyasena
Senior Director
+65 6796 7223
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable.
Additional information is available at www.fitchratings.com. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings.
Applicable criteria, ‘Corporate Rating Methodology,’ dated August 12, 2011 and ‘Rating Oil Refining and Marketing Companies’ dated November 24, 2011, are available at www.fitchratings.com.