Bangkok--5 Nov--Fitch Ratings
Fitch Ratings (Thailand) has affirmed ESSO (Thailand) Public Company Limited's (ESSO) bills of exchange revolving programme of up to THB12bn at 'F1(tha)'. Under the programme, the maturity of each series of bills is no more than 270 days.
Key Rating Drivers
Delay in Deleveraging: Fitch expects ESSO’s funds flow from operations (FFO)-adjusted net leverage to be 5.0x-6.5x during 2013-2016, up from 5.0x-5.5x previously. ESSO’s weaker-than-expected cash flow generation, particularly from the paraxylene (PX) business, and expected weak refining and PX’s product-to-feed margins are likely to delay ESSO’s deleveraging.
No Major Capex: Fitch does not expect ESSO to have major capex in 2013-2017 after the completion of the Sriracha Clean Fuels Project in 2011. Its capex is likely to drop to around THB0.6bn-THB1bn per year from THB4bn-THB4.5bn per year in 2010-2011. As a result, ESSO’s free cash flow (FCF) is likely to continue to be positive from 2013 onwards.
Strong Support from Parent: The rating also reflects operational and financial support from the company's ultimate parent, Exxon Mobil Corporation. ESSO is able to exploit its parent's worldwide procurement network for crude oil and refined products, and use ExxonMobil group's technology and engineering services, human resources and R&D to improve its operational efficiency. Apart from strong operational support, ExxonMobil group has recently provided a THB3bn short-term inter-company loan to ESSO in H113 following the THB5bn long-term loan in 2012. ExxonMobil group also provides ESSO with THB54bn in credit facilities.
Integrated Refiner: The rating reflects Esso's complex refinery capacity relative to peers, access to low-cost raw materials, cost competitiveness, and an established brand name. The integration of PX production provides for a wider product range and reduces the volatility of the company's refining margins. ESSO also has a strong market position in oil retailing with the second-highest market penetration at about 16%.
Highly Cyclical Business: ESSO's credit profile is tempered by its vulnerability to oil prices, gross refining margin and petrochemical product-to-feed margin, which can significantly affect its earnings, working capital needs and cash flow generation. It is also has just one production site, and earnings could be affected if operations at the plant are disrupted.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include
- A substantial improvement in profitability and earnings stability through the cycle, and sustained low financial leverage
Negative: Future developments that may, individually or collectively, lead to negative rating action include
- Weakening ownership and support from ExxonMobil group
- Continuing negative free cash flow
- Sustained low gross refining margin (GRM) and petrochemical spreads, and an increase in debt-funded investments resulting in sustained high leverage