Bangkok--30 May--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) Limited has today affirmed the National Long-term rating of PTT Chemical Plc. (“PTTCH”) at ‘A+(tha)’ with a Stable Outlook. Fitch also affirmed the company’s National Short-term ratings at ‘F1(tha)’. At the same time, Fitch affirmed the ratings of PTTCH’s outstanding senior unsecured debentures at ‘A+(tha) and the ratings of its outstanding secured debentures at ‘AA-(tha)’ (AA minus(tha)).
The ratings of PTTCH are based on its strategic significance to PTT Plc (“PTT”) as the latter’s single flagship company in the gas-based olefins business, the strong support from PTT, its large scale of operations, its favourable feedstock arrangement as well as its high level of production integration via downstream expansions. The company’s forward integration into a variety of downstream products is expected to support earnings growth and reduce earnings volatility in the long term. PTTCH’s ratings are also underpinned by its relatively strong financial position. Despite its large investment plan which should result in an increase in its debt levels and financial leverage from the existing low levels, PTTCH is expected to be able to manage its financial leverage during 2006 to 2010 at a relatively comfortable level at less than 2.0x for net debt/EBITDA ratio, which is consistent with PTT’s financial guidelines. The ratings also take into account the cyclical nature of the petrochemicals industry, execution risks arising from new downstream projects, its large investment plans amid a less favourable operating environment as well as its relatively high exposure to single market.
PTTCH continued to report strong earnings in Q106 with EBITDA and net income increases of 24% and 21%, respectively. The company’s strong performance was underpinned by higher olefins and HDPE sales volume as a result of an absence of plant shutdown in Q106. Meanwhile, the faster increase in feedstock cost nullified positive effects from product price increase and narrowed product to feed margin to 38% in Q106. Given its US dollar debt exposure, the company’s net income also benefited from foreign exchange gains as the Thai baht appreciated during the quarter.
At end-2005, PTTCH’s consolidated debt portfolio mainly consisted of US dollar senior unsecured bonds (58%), domestic secured bonds (31%) and domestic unsecured bonds (7%). The maturity of PTTCH’s existing debt portfolio is relatively back-end loaded with the USD300 million senior unsecured bonds having a bullet maturity in 2015. Meanwhile the remaining debt will mainly be repaid during 2006 to 2008, which should still allow PTTCH to keep its EBITDA/interest and short-term debt coverage ratio at more than 3.0x during those period. The company’s liquidity is also supported by THB14.9 billion cash on hand and large undrawn committed credit facilities.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign 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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