Bangkok--11 Oct--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned PTT Public Company Limited’s (PTT; AAA(tha)/Stable/F1+(tha)) upcoming THB20bn senior unsecured debentures due 2020 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 Oil and Gas Company: PTT dominates Thailand’s oil and gas industry and has a policy role of enhancing national energy security and development. It is the sole operator in gas transmission and distribution, and it procures and resells to end-users nearly all the natural gas that is consumed in Thailand. The country’s electricity generators are the main users of the natural gas. 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. About 65%-70% of the E&P operation’s production is natural gas, much of which is sold domestically. The E&P operation contributed about 67% of PTT’s consolidated EBITDA in 2012.
Leverage Remains Intact: Fitch has lowered its projection for PTT’s FFO in 2013 to reflect higher gas costs, lower margins from gas separation plants and the unplanned shutdown of PTT’s fifth gas separation plant. However, this will be offset by a reduction in capex in 2013. PTT’s FFO-adjusted net leverage is likely to increase in 2014-2015 (2012: 1.5x) due to a continuing increase in debt to fund high capex to expand its E&P and gas distribution and transmission operations, however, it is likely to remain below 2.25x.
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, and large debt funded investments resulting in a sustained deterioration in FFO-adjusted net leverage to 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.