Bangkok--Nov 18--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned National Long-term ratings of ‘AA+(tha)’ to two new tranches of PTT Public Company Limited’s (“PTT”, rated ‘AA+(tha)’/Positive/‘F1+(tha)’) 6-year and 10-year unsecured and unsubordinated debentures totaling THB12.0 billion, due 2011 and 2015, respectively.
PTT’s ratings reflect its dominance in the gas and oil business in Thailand, its strategic importance and function as a policy vehicle for Thailand’s energy security and development, majority state ownership and strong support, good senior management track record, as well as its solid cash flow generation. PTT enjoys a natural monopoly in gas transmission and distribution through its established network, secure demand via long-term sales contracts and the high barriers of entry to its capital-intensive business. Through its subsidiary, PTT Exploration and Production Plc, PTT is one of Thailand’s major exploration and production companies, with the country’s largest reserves and second-largest production. PTT offtakes and resells virtually all of Thailand’s natural gas and has the largest market share of LPG (2004: 37%) and oil (2004: 33%) sales. While the gas interests are the main contributor to EBITDA, and cash flows from this activity have proved relatively stable, PTT’s significant increase in exposure to the more volatile petrochemicals and oil business may raise the company’s credit risk profile over the medium term, although providing some integration benefits.
The continued growth in gas demand and sustained high oil prices have continued to support PTT’s operating performance. PTT’s consolidated EBITDA increased to THB86.8bn in the first nine months of 2005 (“9M05”), up 48% yoy. Thanks to its strong earnings, PTT’s leverage and coverage have remained strong for 9M05, with net debt to last-12-months’ EBITDA of 1.1x (2004; 1.4x) and EBITDA coverage of 13.2x (2004; 9.4x).
The ratings also take into account significant budgeted capital expenditure, volatile commodity prices and forex exposure as well as regulatory and political risks. Recent evidence of the latter was the government’s direction to PTT to reduce gas prices to EGAT Public Company Limited and independent power producers. PTT’s five-year investment plan is now budgeted at THB212.2bn (USD5.6bn), 74% of which is for the gas business, while the company has also earmarked additional investments including a share purchase for a 31.5% stake in Thai Petrochemical Industry Plc of THB20.3bn, as well as a capital injection in Bangchak Petroleum Plc of about THB4.0bn. Nonetheless, PTT estimates that despite a significant budgeted capital expenditure, in particular during 2005 to 2007, its net debt is expected to increase only moderately, thanks to its projected strong earnings growth. Meanwhile, Fitch expects financial leverage will likely stay below 2.0x over the next three years.
The Positive Outlook on PTT’s ratings reflects stronger-than-expected earnings due to rising oil prices and expectations that PTT will use its surplus cash to reinforce its core business while maintaining a conservative financial profile. Negative triggers which may offset this are increasing exposure to the volatile petrochemicals and oil sectors and substantial new investment risks.
PTT was partially privatised and listed on the SET in 2001. Thailand’s Ministry of Finance still holds a 52% stake in PTT and is expected to retain a majority stake for the foreseeable future. PTT is the largest company on the Thai stock market, with a market capitalisation of THB615bn at end-October 2005.
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.
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