Bangkok--23 Mar--Moody's Asia
Moody's Investors Service has affirmed the Baa3 issuer rating and foreign currency senior unsecured bond rating of
The Aromatics (Thailand) Public Company Ltd (ATC). The outlook for the ratings remains stable.
"Moody's notes that margin pressure -- arising from high feedstock costs and weaker-than-expected market conditions for aromatics -- have negatively impacted ATC's operating performance," says lead analyst Helen Li, adding, "This situation, coupled with the company's sizeable expansion/investment programs, will result in a deterioration in its credit metrics, with Adj. Debt/EBITDA averaging around 3x over the next 2-3 years."
However, Moody's draws comfort from ATC's strong liquidity profile, as supported by its large cash balance, the availability of undrawn committed bank facilities (around US$270 million) and the trade credit facility provided by major shareholder, PTT. "Accordingly, ATC should weather any industry downturn in the near to medium term, while
completion of the Aromatics II project will strength its cash generation ability and improve its credit profile in 2008," Li says.
The Baa3 ratings continue to reflect the application of Moody's Joint Default Analysis to Government Related Issuers. In accordance with this methodology, the ratings reflect the combination of 1) baseline credit assessment (BCA) of "5", 2) the A2 rating of PTT, the support provider, 3) high dependence, and 4) medium support from PTT.
"The BCA continues to reflect ATC's well-established and integrated production facilities, competitive cost structure, major market position in Thailand, and strong business operating structure," Li says.
Furthermore, the strength of the operating structure includes PTT as the company's primary feedstock supplier and its sales-and-purchase counter-party under various long-term agreements.
Meanwhile, the BCA also incorporates the cyclical nature of the aromatics industry, weak market conditions for the near to medium term, ATC's small operating scale and short track record, the large capex needed for its expansion programs, the subsequent impact on its credit metrics, as well as the execution and operating risks associated with these programs.
Its high dependence and medium support level remain unchanged, reflecting the close business integration between ATC and PTT as well as ATC's strategic importance within PTT's energy value chain.
Upward rating movement would evolve if a strengthening in the company's BCA occurs due to: 1) successful implementation of its Aromatics II project as planned, 2) demonstration of a track record for effectively managing its business through the next industry cycle, and 3) consistent generation of free cash flow and improvement in its financial profile, such that Adj Debt/EBITDA falls below 1.5x and EBITDA/Interest exceeds 10-12x on a sustainable basis. A further strengthening of its business relationship with PTT and evidence of financial/business support from PTT would also be positive for the rating as it could improve the support level.
On the other hand, the rating would experience downward pressure if the BCA weakens, such that average EBITDA/Interest falls below 6x and Adj Debt/EBITDA exceeds 3x over the next 3-5 years. This outcome could be a result of: 1) a material downturn in the petrochemicals industry, or 2) the company undertakes further aggressive debt-funded capex plans.
Furthermore, a significant reduction in PTT's ownership of ATC and/or a material change to the supply and off-take agreements between the two companies would be negative for the rating as either development could
impact the support level.
ATC is a Thai-based petrochemicals company involved in the production of benzene, paraxylene, orthoxylene and mixed xylenes, including by-products like raffinate, light naphtha, hydrogen-rich gas, LPG gas, condensate residue and heavy aromatics. Following the completion of stage 2 of its de-bottlenecking project in April 2004, ATC achieved a nameplate aromatic capacity of 1,101 KTPA.
Hong Kong
Helen Li
Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Hong Kong
Gary Lau
Senior Vice President
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121