Bangkok--13 Nov--Fitch Ratings
Fitch Ratings (Thailand) Limited says that although the recent increase in Thailand's strategic oil reserve requirement will likely raise debt levels at the country's refiners, the change will have no immediate rating impact on the Thai refiners rated by the agency.
From 1 November 2013, Thai refiners have to set aside 6% of Thailand’s domestic oil consumption in the country’s strategic oil reserve, compared with 5% previously. The government said the increase is aimed at lowering the risk of oil supply disruptions because the majority of oil consumed in Thailand is imported.
The increase in the strategic reserve requirement would lead to higher working capital needs and thus higher debt for the refiners. In addition, some refiners may have to acquire additional storage capacity and holding higher stocks will expose the refiners to bigger inventory gains or losses arising from swings in both crude oil and refined product prices.
Fitch estimates the refiners need additional debt of THB15bn to finance the increase in the reserve requirement, based on a crude oil price of USD100 per barrel. The additional debt would be manageable for the refiners as it will represent about 0.2x of the aggregate funds flow from operation of the top five listed oil refiners, who together account for 85% of the country’s total refining capacity. The refiners would have to bear additional cost of about USD0.35 per barrel, or about THB3.2bn for the total industry (4% the aggregate EBITDA of the top five listed oil refiners), if they do not pass this cost on to end users.
The impact of the change on each Thai refiner will be different, depending on their currently available storage capacity and cost per unit, the level of their existing reserves, and their cost of funding to finance the inventory. However, Fitch expects the anticipated increase in costs, leverage and higher inventory price risks to have no immediate rating impact on the rated refiners — PTT Global Chemical Public Company Limited (AA(tha)/Stable/F1+(tha)), Thai Oil Public Company Limited (AA-(tha)/Stable/F1+(tha)), IRPC Public Company Limited (A-(tha)/Stable/F2(tha)).