Bangkok--23 Jan--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed Thai Oil Public Company Limited’s (TOP) National Long-Term rating at ‘AA-(tha)’ with a Stable Outlook. At the same time, the agency has affirmed TOP’s National Short-Term rating at ‘F1+(tha)’ and the National Long-Term rating on its senior unsecured debentures at ‘AA-(tha)’.
TOP’s Long-Term ratings incorporate a one notch uplift from its standalone credit profile, reflecting its linkages with PTT Public Company Limited (PTT, ‘AAA(tha)’/Stable). This reflects the strategic importance of TOP and its operating links with PTT, aside from PTT being the single largest shareholder of TOP with a 49% interest. TOP is the key refiner among PTT’s refinery affiliates and is the key supplier to PTT’s oil retailing business, supplying about 58% of its requirements for 9M12.
TOP’s standalone credit profile reflects its large scale among domestic peers, its highly complex production capacity and resultant cost competitiveness. Continuous efficiency improvement and an increasing share of higher-value products have helped the company to maintain its competitive advantage relative to peers.
TOP’s expansion into aromatics, lube base oil and solvents has broadened its exposure to the oil value chain and reduces margin volatility. Fitch expects higher earnings from its power generation business from 2016 as two new co-generation plants come on-stream. However, the power business’s EBITDA contribution is moderate and is expected to be no more than 8% of TOP’s EBITDA in 2016.
TOP’s planned capex will increase from its average annual spend during 2009-2011 of around THB3.9bn. The company intends to spend THB28.7bn between 2013 and 2016 on power expansion, on improving both efficiency and reliability, and on refinery upgrading projects. Fitch expects the company to fund this capex with debt and internally generated cash flows. However, leverage as measured by adjusted debt net of cash to funds flow from operations (FFO) should remain below 1.25x in 2013-2016, as Fitch expects the company to run positive free cash flow (FCF) over the projected period. For 9M12, FFO net adjusted leverage was 0.9x.
TOP’s credit profile is tempered by the inherent cyclicality of its businesses. The company is also exposed to a single production site and a single market. High dependence on PTT for sales (43% of petroleum product sales in 2011) is partly mitigated by PTT’s strong credit profile, and by its position as Thailand’s main oil marketing and trading company. TOP is also exposed to supply risk, as Thailand is highly dependent on foreign oil.
What could trigger a rating action?
Positive: Future developments that may, individually or collectively, lead to positive rating action include
-sustained FFO adjusted net leverage below 0.75x, although this is unlikely in the medium term
-evidence of stronger ties with PTT
Negative: Future developments that may, individually or collectively, lead to negative rating action include,
-sustained low refining margins and thin petrochemical spreads
-an increase in debt-funded investments resulting in FFO adjusted net leverage rising above 1.75x
-weakening of linkages with PTT