Bangkok--17 Jun--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned PTT Public Company Limited’s (PTT; AAA(tha)/Stable/F1+(tha)) upcoming THB10bn senior unsecured debentures due 2023 a National Long-Term rating of ‘AAA(tha)’. The proceeds will be used to refinance debt and fund future capex.
The notes are rated at the same level PTT’s National Long-Term rating as they constitute direct, unsecured, unconditional, and unsubordinated obligations of the company.
Key Rating Drivers
National O&G company: PTT is a dominant player in Thailand’s oil and gas (O&G) industry, with its policy role of enhancing national energy security and development. It is the sole operator in gas transmission and distribution, and off-takes and resells nearly all of natural gas consumed in Thailand, which is a major fuel for the country’s electricity generation. PTT is also one of Thailand’s major exploration and production (E&P) companies, and a leading oil and petrochemicals company.
Solid cash flow generation: PTT’s financial profile benefits from stable cash flows from its gas interests. These cash flows are underpinned by stable demand and sales based on long-term supply and sales agreements with take-or-pay conditions on a cost-plus pricing structure. Gas distribution and transmission operations account for around a quarter of PTT’s EBITDA. Moreover, of the company’s E&P operations which contribute about 60% of PTT’s consolidated EBITDA, nearly 75% is natural gas production, much of which is sold domestically.
Large capex and acquisition: PTT is actively investing in upstream and gas businesses to ensure energy security for the country, particularly in natural gas for electricity generation. PTT and its key subsidiary, PTT Exploration and Production, plan to spend about USD27bn (THB809bn) during 2013-2017, with a large allocation of capex for E&P to boost production and to extend reserve life. PTT has also been actively acquiring overseas upstream assets since 2010.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating action include
-adverse changes to regulations and to gas sales contracts and pipeline tariffs, large debt funded investments resulting in a sustained deterioration in financial funds from operations (FFO)-adjusted net leverage over 2.25x (end-2012: 1.5x). However, in the event of deterioration in its credit metrics, Fitch would provide a one notch uplift to its standalone rating on account of the linkages with the state as per Fitch’s parent-subsidiary linkage methodology.