Bangkok--Jul 6--Moody's Asia Pacific
Moody's Investors Service has assigned a final Baa3 rating to the US$300 million bonds issued by Thai Olefins Public Company Ltd (TOC) following completion of the issuance. At the same time, Moody's has assigned a final Baa3 issuer rating to TOC. The ratings outlook is stable.
Moody's continues to say that the proposed merger between TOC and
National Petrochemical Public Company Limited (NPC) would not result in a change from TOC's stand-alone rating.
The amalgamation of TOC and NPC is intended to provide a clearer alignment of the olefins business of PTT Public Company Ltd. (PTT) and create a
single flagship olefins company for the PTT group. The merger would result in a new entity (the MergedCo) that would combine the existing assets and liabilities of the two companies. New shares in the MergedCo would be allocated to shareholders of TOC and NPC based on respective ratios. The boards of TOC and NPC have already approved the transaction, but it is still subject to shareholder and creditor approval.
The proposed merger is overall positive since it would create the largest
olefins producer in Thailand, potentially ranking the fifth in Asia in terms of installed capacity. Nevertheless, Moody's considers that the merger would not result in any rating impact, given the expected large capital expenditure of the MergedCo over the next few years and higher level of debt towards 2008. Over the medium term, the credit metrics post-merger would remain appropriate for the Baa3 rating.
The Baa3 rating also recognizes the close business integration and
relationship with PTT (rated A3/stable), and has incorporated one-notch uplift in view of the potential for support from PTT. Moody's understands that PTT intends to maintain a shareholding of over 40% in the MergedCo.
While majority of NPC's debt is unsecured, the pro-forma secured debt of
the MergedCo would remain at a high level of over 25% of total debt. The rating has not factored into legal subordination as Moody's anticipates TOC / MergedCo to lower its secured debt to total debt ratio to below 15% by 2007. The above is expected to be achieved by either converting certain secured facilities into unsecured facilities or replacing its undrawn secured bank facilities by a new unsecured committed credit facility. Failure to do so would result in a rating downgrade.
TOC is the second largest olefins producer in Thailand. Listed on the
Stock Exchange of Thailand, TOC currently has a nameplate olefins capacity of 935 kta, divided into 685 kta for ethylene and 250 kta for propylene.
NPC is the third largest olefins producer in Thailand with a current
nameplate capacity of 564 kta -- 437 kta for ethylene plus 127 kta for propylene. It also has 250 kta of HDPE nameplate capacity.
Hong Kong
Helen Li
Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
Telephone: 852-2509-0200
Facsimile: 852-2509-0165 End.