Bangkok--Jun 13--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National Long-term rating of ‘AA+(tha)’ to Thailand’s PTT Public Company Limited’s (“PTT”, rated ‘AA+(tha)’/‘F1+(tha)’ Outlook Positive) 10-year unsecured and unsubordinated debentures of THB4.04 billion due June 2015.
The rating reflects PTT’s dominance in the Thai gas and oil sector, its strategic importance and function as a policy vehicle for Thailand’s energy security and development, majority state ownership and strong support, good management track record and solid cash flow generation. PTT enjoys a natural monopoly in gas transmission and distribution through its established network and secure demand via long-term sales contracts, and also the high entry barriers related to the capital-intensive business. Through its subsidiary, PTT Exploration and Production Plc., PTT is one of Thailand’s major exploration and production companies, with the largest reserves and second-largest production. PTT supplies virtually all of Thailand’s natural gas and has the largest market share in LPG (2004: 37%) and oil (2004: 33%) sales. PTT’s gas interests are the main contributor to its EBITDA, and the cash flows have proved relatively stable due to long-term supply and sales agreements, a cost-plus pricing structure and generally less volatile gas prices.
Thailand’s economic recovery and the continued growth in gas demand has supported PTT’s operating performance over the past few years. PTT’s consolidated EBITDA continued to increase by 27% yoy in 2004 and 37% yoy in 1Q05. PTT’s debt and net debt rose to THB150.1bn and THB78.9bn, respectively, at end-1Q05 from end-2003 due mainly to the consolidation with Rayong Refinery Company (“RRC”). However, its leverage and debt coverage remain strong with net debt to last-twelve-month EBITDA of 0.95x and EBITDA coverage of 10.8x for 1Q05. PTT’s liquidity remains very strong with cash holdings of THB71.2bn compared to THB7.6bn of total short-term debt.
The rating also takes into account significant budgeted capital expenditure, commodity price, forex exposure, regulatory and political risks. PTT has revised up its five-year investment plan to THB212bn (USD5.6bn), 74% of which is for the gas business, to reflect new investments, a revision of existing projects and the increased raw material and construction costs. Given a significant budgeted capital expenditure, particularly for 2005 to 2007, PTT’s net debt is expected to increase moderately, but its financial leverage should remain relatively low and its liquidity should stay strong over the next three years on strong earnings.
PTT plans to acquire a 31.5% stake in Thai Petrochemical Industry Plc (“TPI”) at a cost of THB20.3bn. TPI is one of Thailand’s largest integrated petrochemicals producers, using liquid base as feedstock. The acquisition will benefit PTT’s petrochemicals and oil businesses, particularly downstream, but it will also increase PTT’s exposure to the more volatile petrochemicals sector and result in a heavy cash outflow. However, there should be no increase in PTT’s debt, as PTT plans to fund the acquisition from the divestment of its RRC stake or debt repayment from RRC. Subject to court approval, the transaction is expected to close by end-2005.
The Positive Outlook on PTT’s ratings reflects stronger-than-expected earnings due to the rising oil prices and expectations that PTT will use its surplus cash to reinforce its core business while maintaining a conservative financial profile.
PTT was partially privatised and listed on the Stock Exchange of Thailand in 2001. Thailand’s Ministry of Finance directly holds a 52% stake in PTT and is likely to retain a majority stake for the foreseeable future. PTT is the largest company on the Thai stock market, with a market capitalisation of THB551bn at end-May 2005.
Contact:
Lertchai Kochareonrattanakul, Bangkok, +662 655 4760; Wasant Polcharoen +662 655 4763; Orawan Karoonkornsakul +662 655 4766; Vincent Milton +662 655 4759
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.
Fitch’s rating definitions are available on the agency’s free of charge website, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the free site for seven days. End.