Bangkok--Sep 20--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) Limited has affirmed the Long-term National ratings of Thai Olefins Public Company Limited’s (“TOC”) THB10.0 billion Secured Amortizing Bonds at ‘A-(tha)’ (A minus(tha)). The Outlook has been revised to Positive from Stable based on TOC’s better-than-expected 2004 earnings performance, which should provide flexibility to absorb new investments. Fitch notes that TOC should continue to benefit from the cyclical upturn in the petrochemicals industry thanks to the scheduled completion of its expanded ethylene operations in 1Q05, which should help strengthen its financial position further. Additionally, the acquisition of Bangkok Polyethylene (“BPE”), its largest ethylene offtaker should assist in stabilising margins.
The ratings reflect the company’s strong ownership structure and support from Thailand’s state-owned oil and gas conglomorate, PTT Plc (“PTT”), its improved financial position, secure long-term feedstock supply and sales agreements, flexible feedstock procurement and cost-competitive position owing to the future operation of its gas-based plants. The ratings take into account the cyclical nature of the petrochemicals industry. The ratings also reflect the uncertainty arising from its mono-ethylene glycol (“MEG”) project. TOC may be exposed to operational risk when the project comes on stream in 2006 and may not be able to reap the full benefit of the cyclical peak in prices. Nonetheless, the cumulative cash flow of the existing olefins plant and the contribution from the expansion plant, as well as debottlenecking from the expected cyclical upturn should provide some financial flexibility to absorb risks from the start-up period of the MEG plant.
TOC reported a 27% yoy increase in EBITDA for 1H04, even with a 22-day plant shutdown, due mainly to the wider spread of olefins prices and their feedstock. Its net debt to last-12-month (“LTM”) EBITDA weakened slightly to 1.7x at end-1H04 from 1.5x at end-2003 as its net debt rose due to the use of cash for investments. Its EBITDA to interest expense ratio improved to 15.2x (4.7x in 1H03). Despite the expected continued strong operating performance in 2H04, TOC’s net debt is likely to rise slightly this year due to increased investment. However, with the strong upturn in olefins prices, particularly in 2004 and the contribution from the anticipated cost reduction per unit arising from the expansion, TOC should be able to keep its net debt to EBITDA ratio below 2.0x in 2004/05 and should see it strengthening during 2006/07.
TOC was set up in 1990 as a joint venture between PTT, which holds a 45% stake, and downstream producers to operate the second olefins plant in Thailand. TOC started commercial operation in 1995 and now has a nameplate capacity of 385,000 metric tons per annum (“MTPA”) of ethylene and 190,000 MTPA of propylene. After expansion and debottenecking are completed, TOC will have a total olefins production capcity of 1,175,000 MPTA, close to Rayong Olefins, the largest such producer in Thailand.
A full rating report on Thai Olefins Plc. will be available at: www.fitchratings.com
CONTACT: Pimolpa Simaroj, Associate Director, Corporates, Bangkok, Tel: +662 655 4761; Lertchai Kochareonrattanakul, Associate Director, Corporates, Bangkok, Tel: +662 655 4760; Orawan Karoonkornsakul, CFA, Director, Corporates, Bangkok, Tel: +662 655 4766; Vincent Milton, Managing Director, Bangkok, Tel: +662 655 4759.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings.. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. End.
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