Bangkok--Jul 26--Moody's Investors
Moody's Investors Service has assigned an A2 senior unsecured foreign currency debt rating to the proposed US$250 million notes to be issued by PTT Public Company Ltd (PTT). The rating outlook is stable.
The A2 rating of PTT reflects the application of Moody's new rating
methodology for government-related issuers (GRIs). Please refer to Moody's Rating Methodology entitled "The Application of Joint Default Analysis to Government-Related Issuers", published in April 2005, and its accompanying press release. Please also refer to Moody's Special Comment entitled "Rating Corporate Government-Related Entities in Asia Pacific" for a detailed discussion of the application of the GRI rating methodology to corporate issuers in Asia Pacific.
In accordance with Moody's GRI rating methodology, the A2 rating of PTT
reflects the combination of the following inputs:
- Baseline credit assessment of 3 (on a scale of 1 to 6, where 1
represents lowest credit risk)
- Baa1 local currency rating of the Thai government
- High dependence
- High support
The baseline credit assessment of PTT is underpinned by the integrated
nature of PTT's operations, its monopoly position in the gas transmission and distribution business which generates stable and predictable earnings
- and Moody's expectation of continued stability in the government's
regulatory policy towards the gas sector. The baseline credit rating also recognizes the inherent strengths of its upstream subsidiary PTTEP (rated A2), which generates approximately 45% of group EBITDA.
At the same time, the baseline credit assessment considers PTT's large
capital expenditure program mainly to expand Thailand's gas transmission pipeline network and commercialize its gas reserves through PTTEP. The capital expenditure program will lead to negative free cash flow over the next 3 years. The assessment incorporates moderate / high level of financial leverage on an adjusted-debt basis. The assessment also considers the risks arising from PTT's refining and petrochemical associates. Deterioration in the financial profiles of PTT's refining
and petrochemical associates could prompt company to provide financialsupport, as happened several years ago. This situation is mitigated by the currently favorable state of the downstream environment. Other risk factor includes counterparty risk on the gas off-takers, predominantly EGAT and PTT's large dependence on the performance of the Thai economy.
Medium dependence reflects PTT's exposure to the country's economic
development and majority of its cash flow being generated from the domestic market.
High support reflects the national strategic importance of PTT, which
translates to high incentive for government support, given the company's role in supporting the critical power sector in Thailand.
The A2 foreign currency bond rating of PTT incorporates all the above
factors and adds convertibility risk, which is the likelihood of the government declaring a debt moratorium to counter a foreign currency crisis. As such, PTT's foreign currency rating is a function of its own risk of default (as indicated by its local currency rating), the probability of a Thai government default on its foreign debt (implied by its Baa1 rating), the likelihood that the government would declare a moratorium in the event of a default and, if it did, the chances that it would exempt a company such as PTT.
Upward rating movement may evolve over time if 1) PTT demonstrates
consistent progress in executing its capital investment plan, 2) The Thai government maintains its current regulatory policy for the gas sector, 3) PTT does not provide financial support to its associates beyond its pro-rata ownership, and 4) PTT maintains a consolidated Adjusted Debt/EBITDA ratio of below 2.0x.
On the other hand, the ratings may experience downward trend if 1)PTT
faces major disappointments in implementing its 3rd pipeline and upstream development plans, 2) sustained deterioration occurs in Thailand's economic growth and/or gas consumption, 3) PTT provides financial support to its associates beyond its pro-rata ownership, and 4) sustained deterioration is seen in PTT's Adjusted Debt/EBITDA ratio to 3.5x and above.
PTT Public Company Ltd, headquartered in Bangkok, Thailand and 52% owned
by the government through Ministry of Finance, is an integrated gas company whose activities encompass 1) gas exploration and production through its 66.48% owned subsidiary PTT Exploration and Production Co Ltd, 2) gas transmission and distribution, and 3) gas processing. The company also maintains extensive oil marketing and trading activities, and has minority interests in several oil refining and petrochemical companies in Thailand.
Terry Fanous
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service Pty Ltd
612 9270 8100
Sydney
Brian Cahill
Managing Director
Corporate Finance Group
Moody's Investors Service Pty Ltd
612 9270 8100 End.