Bangkok--10 May--Fitch's rating
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)’) 10-year and 15-year unsecured and unsubordinated debentures totaling THB4.0 billion, due 2016 and 2021, 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. The ratings also reflect its majority state ownership and strong support, good management track record, as well as its solid and stable cash flow generating capability. PTT enjoys a natural monopoly in gas transmission and distribution through its established pipeline 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 (“PTTEP”), 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 (2005: 48%) and oil (2005: 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 THB114.0bn in 2005, up 43.8% year-on-year. Thanks to its strong earnings, PTT’s leverage and coverage have remained strong for 2005, with net debt to EBITDA of 1.3x (2004; 1.4x) and EBITDA coverage of 12.9x (2004; 9.4x).
Nonetheless, the ratings take into account significant budgeted capital expenditure, volatile commodity prices and forex exposure, as well as regulatory and political risks. PTT’s five-year investment plan (during 2006-2010) is now earmarked at THB238.8bn (USD6.0bn), 73% of which is for the gas transmission business, while the remainder is largely for the joint venture and petrochemicals businesses. Despite a significant budgeted capital expenditure, PTT’s 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, substantial new investment risks, as well as a possible earnings impact from a delay in the Arthit project, PTTEP’s new upstream exploration and production project, scheduled to be operational in mid-2007.
Contact: Lertchai Kochareonrattanakul +662 655 4760; Wasant Polcharoen +662 655 4763; Vincent Milton +662 655 4759
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.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.