Bangkok--Jun 2--Fitch Ratings
Fitch Ratings (Thailand) Limited has today upgraded the National Long-term ratings for The Aromatics (Thailand) Public Company Limited’s (“ATC”) THB8.0 billion and THB4.0bn secured amortising debentures to ‘A-(tha)’ (A minus(tha)) from ‘BBB+(tha)’.
The upgrade of the ratings is based on ATC’s stronger-than-expected operating performance which has resulted in a sharp decline in its financial leverage, giving the company greater financial flexibility to absorb volatile price trends. Although ATC is planning a large investment in a new aromatics plant, the strong cashflow accumulation from recent years should provide a cushion for the company during the construction period and any cyclical downturn and allow it to maintain its leverage at a manageable level. The ratings also factor in the strong ownership structure and support from PTT, its largest shareholder with a 46% stake, secured long-term feedstock supply and aromatics sales agreements, flexible feedstock procurement and cost-competitive position, as well as the credit enhancement structure. Most of ATC’s production output is sold to PTT under long-term agreements, while the main supplier for feedstock is also PTT.
ATC’s financial position has improved substantially over the past two years due to high product prices from a cyclical upturn, as well as higher volume from capacity expansion. At end-2004, ATC’s total debt was THB17.9bn, of which THB8.1bn was a subordinated loan from its shareholders. Its net debt-to-EBITDA ratio improved to 1.3x, from 3.9x in 2003 while the EBITDA-to-interest expense ratio grew to 20.3x in 2004, compared with 4.9x in 2003. Although, the new aromatics plant will increase leverage and operating risks over the next two years, the management’s good track record, feedstock cost advantages and strong projected cash flow should mitigate these risks.
The ratings also take into account the highly cyclical nature of the petrochemical industry. Prices have softened in 1H05, following a weakening economic growth outlook and the prospect of tariffs being imposed on Chinese textiles, which may affect demand for paraxylene (an upstream product for textile production). On the other hand, the supply gap in China and limited regional additional capacity should help underpin prices.
ATC started commercial operation in 1997. ATC’s main products include benzene, paraxylene, mixed xylene and orthoxylene while its by-products include light naphtha, raffinate, LPG, condensate residue, and heavy aromatics.
A credit update report on The Aromatics (Thailand) Plc. will be available at: www.fitchratings.com
Contact: Pimolpa Simaroj, Orawan Karoonkornsakul, Lertchai Kochareonrattanakul, Vincent Milton; Bangkok, Tel: +662 655 4755.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign 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.