Bangkok--21 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned Thai Oil Public Company Limited’s (TOP) senior unsecured debentures a ‘AA-(tha)’ National Long-Term Rating.
The debentures, which will total up to THB15bn, will be issued in four tranches due in 2017, 2019, 2021 and 2024. The proceeds from the debentures will be used to fund capex and/or working capital. The notes are rated at the same level as TOP’s National Long-Term Rating as they constitute direct, unsecured, unconditional and unsubordinated obligations of the company.
Key Rating Drivers
Higher Capex: TOP’s planned capex will remain elevated in the next two years to 2015. Fitch expects TOP’s capex will increase to a total of THB44.5bn in 2013-2015 from an average annual spend of about THB4.9bn during 2009-2012. The company is invsting in a benzene derivative project via a joint-venture. In addition, the company will invest in power generation capacity expansion, efficiency and reliability improvements, refinery upgrading projects, and expansion of its solvent business. Although leverage (as measured by FFO-adjusted net leverage), is likely to increase in 2014, it should reduce and stay in the 1.0x-1.5x range in 2015-2016 when capex recedes.
Complex and Low-Cost Refiner: TOP’s ratings reflect its large size compared with domestic peers, its complex production capacity and resultant cost competitiveness. Continuous improvements in efficiency and increase in higher-value products have helped TOP maintain its competitive position.
Business Diversification: TOP’s forward integration into aromatics, lube base oil and solvents has broadened its product ranges and reduced margin volatility. Expansion into benzene derivatives will enhance its product range. Fitch expects higher earnings from its power-generation business from 2016 as two new co-generation plants come on stream, although the contribution from power generation to overall EBITDA will remain relatively small at around 6%-8%.
Linkage to PTT: TOP’s Long-Term National 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 TOP’s strategic importance to PTT (aside from PTT being the single largest shareholder of TOP, with a 49% interest). TOP is PTT’s key refiner and major supplier to PTT’s oil-retailing business, supplying about one-third of requirements for 2013.
Highly Cyclical: TOP’s credit profile is tempered by the inherent cyclicality of its businesses. The company also has only a single production site. High dependence on PTT for sales (43% of petroleum product sales in 2013) 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.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include
- Sustained FFO-adjusted net leverage below 0.75x (2013: 1.2x), 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