Bangkok--29 Oct--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned PTT Public Company Limited’s (PTT; AAA(tha)/Stable/F1+(tha)) upcoming up to THB12bn senior unsecured debentures due 2021 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 is dominant in Thailand oil and gas industry, and plays a policy role in enhancing national energy security and development. It is a major operator in gas transmission and distribution, and off-takes and resells nearly all the natural gas consumed in Thailand. Natural gas 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 petrochemical company.
Solid Cash Flow Generation: PTT’s financial profile benefits from relatively 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. The gas business accounted for about 21% of PTT’s EBITDA in 1H14. Moreover, of the company’s sales from its E&P operations, which contributed about 67% of PTT’s consolidated EBITDA in 1H14, 66% was natural gas sales volume, much of which was sold domestically.
Capex to Remain High: Fitch expects PTT’s and its subsidiaries’ capex to increase in 2014 as the company is investing in the E&P and gas businesses to ensure energy security for the country. As a result, Fitch expects PTT’s financial leverage to increase in 2014. In addition, the fall in oil prices will likely drive PTT's financial leverage higher than previously anticipated. However, our revised forecasts indicate that it can maintain its financial leverage (measured by FFO-adjusted net leverage) below 2.25x (end-2013: 1.6x).
Mid-sized Integrated Operator: PTT’s standalone credit profile reflects its integrated business model. PTT’s proved reserve life, however, fell to about seven years at end-2013 from about 10 years at end-2010 due to less than 100% reserve replacement in the last three years. Fitch expects some of the recent investments to add to PTT’s proved reserve base, improving its reserve profile over time. The company has also pared its previously very aggressive 2020 production target of 900,000 barrels of oil equivalent per day to 600,000 barrels of oil equivalent per day.
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 and/or weaker-than-expected operating cash flow resulting in a sustained deterioration in FFO-adjusted net leverage to over 2.25x
- failure to address falling reserve life
- EBITDA from gas mid-stream business below 20% of the total EBITDA on a sustained basis
Should PTT’s standalone rating be lowered below that of the sovereign, Fitch would provide a one-notch uplift to its standalone rating on account of the linkages with the state under Fitch’s parent-subsidiary linkage methodology.