Bangkok--Nov 3--Fitch Ratings
Fitch Ratings (Thailand) Limited today affirmed the National Short-term rating of Esso (Thailand) Plc’s THB8.0 billion bills of exchange (“B/E”) revolving programme at ‘F1(tha)’. The rating reflects the standby credit facility provided by Exxon Overseas Investment Corporation (“EOIC”), ExxonMobil’s wholly-owned subsidiary, that is set to fully cover the up to three-month B/E under the programme. Esso (Thailand) also undertakes to ensure that the standby credit facility will be available to satisfy the company’s obligations under the B/E program as well as all outstanding short-term obligations.
The rating also reflects the strong operational and financial support from ExxonMobil, the world’s largest publicly-traded integrated oil and gas company, its acquisition of crude oil and refined products from its parent at competitive prices, its cost efficient refinery and strong brand name in Thailand. Esso (Thailand) is one of ExxonMobil’s key refining, marketing and chemical production businesses in Asia, with a total investment of nearly USD900 million. In addition to the credit facility, ExxonMobil has provided inter-company loans, mainly in the form of long-term zero coupon bonds, to Esso (Thailand) to replace bank loans following the country’s 1997 crisis. Esso (Thailand) is 87.5% owned by ExxonMobil Group, with the rest owned by the Ministry of Finance.
The ratings also take into account Esso (Thailand)’s relatively weak, although improving, stand-alone financial position, the overcapacity in the highly competitive refining market, and the cyclical nature of the oil business. Thanks to a continued growth of domestic oil consumption and wider refining margins, Esso (Thailand) reported a strong operating performance in 2003, with sales of THB120.4bn, up 19% yoy, and EBITDA of THB10.6bn, up 341% yoy. It is worth noting that the company changed its accounting policy on inventory from last in/first out (“LIFO”) to first in/first out (“FIFO”), which increased gross profit and EBITDA by THB5.4bn. The company’s net debt to EBITDA ratio strengthened to 6.0x at end-2003 (at end-2002; 25.7x). Taking into account the face value of the zero coupon bonds, the company’s adjusted net debt to EBITDA ratio would increase to 8.6x. While improving, financial leverage still remains high.
The company’s total debt rose to THB64.4bn at end-2003 due mainly to the accrued interest from the zero coupon bonds. Of the total debt, 87% was inter-company loans, mainly long-term, with the rest being short-term bank loans. Of the THB56.2bn of inter-company loans, THB37.5bn were zero coupon bonds that cannot be called prior to maturity in 2009-2012 without agreement between Esso (Thailand) and the inter-company lender, THB16.7bn were financial lease with fixed payment schedule, which also cannot be expedited unless mutually agreed between the company and the inter-company lessor, and the rest was loans under the revolving facility of inter-company loan agreement with maturity date in June 2006. The structural support from ExxonMobil via the inter-company loans and the credit facility mitigates the risk arising from Esso (Thailand)’s weak stand-alone financial position.
Over the past two years, Esso (Thailand) has benefited from a recovery in refining margins, along with the increases in crude oil and refined product prices. The sharp rise in oil prices globally as well as tightening supply of oil refined products locally have been key drivers behind the margin recovery. Gross refining margins have improved substantially since 2002, with the average gross refining margins up from USD1.72/barrel for 2002 to USD2.92/barrel for 2003 and USD4.41/barrel for the first eight months of 2004. Although oil prices and local refining margins are expected to soften after 2005 on the back of Thailand’s expected increase in oil refinery capacity, Esso (Thailand) expects a continuing growth in domestic oil consumption and a higher contribution from its petrochemical business, to offset lower refining margins.
Full rating reports on Esso (Thailand) Plc is available on the agency’s subscriber website at www.fitchratings.com.
CONTACT: Lertchai Kochareonrattanakul Tel: +662 655 4760; Wasant Polcharoen +662 655 4763; Vincent Milton +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.