Bangkok--29 Jun--Moody's
Moody's Investors Service has assigned an A3 rating to the senior unsecured loan of JPY23 billion recently extended to PTT Public Company Ltd (PTT). At the same time, Moody's has affirmed the A2 long term local currency issuer rating of PTT.
The A3 loan rating is the same as the foreign currency country ceiling of Thailand. The loan is bilateral and not marketable, and therefore not eligible to pierce the country ceiling. The ratings outlook is stable.
The A2 local currency rating of PTT reflects the application of Moody's Joint Default Analysis (JDA) 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.
In accordance with this 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, reflecting PTT's exposure to the country's economic development and the fact that most of its cash flow is generated from the domestic market.
- High support, reflecting the national importance of PTT, particularly to power generation, and which translates into a high incentive for government support.
The baseline credit assessment (BCA) reflects the integrated nature of PTT's operations, its natural monopoly position in the gas transmission and distribution business which generates stable earnings - and Moody's expectation of continued stability in the government's regulatory policy towards the gas sector. The BCA also recognizes the inherent strengths of
PTT's upstream subsidiary PTTEP (rated A2), which benefits from its dominant natural gas production that is sold under long-term take-or-pay contracts, and with only limited price volatility.
At the same time, the BCA considers PTT's large capital expenditure program mainly to expand its gas business. The capital expenditure program will likely result in negative free cash flow over the next 1-2 years, leading to higher financial leverage. Other risk factors include counterparty risk on the gas off-takers and PTT's large dependence on the
performance of the Thai economy.
The application of Moody's integrated oil and gas industry rating methodology produces a BCA of high 4, compared to PTT's actual BCA of low 3. Key considerations accounting for the difference are 1) PTT's natural monopoly gas transmission and distribution network which generates stable earnings and cash flow, and 2) the inherent credit strengths of its E&P subsidiary PTTEP, which itself has a BCA of 3. The combined PTT gas midstream and PTTEP operations generate more than 80% of group earnings.
Upward rating movement may evolve over time if 1) PTT demonstrates consistent progress in executing its capital investment plan, 2) the government maintains its current regulatory policy for the gas sector, 3)PTT does not provide financial support to its associates beyond levels determined by its pro-rata ownership stakes, and 4) PTT strengthens its
financial metrics, such that EBIT/Interest exceeds 15x and Retained Cash Flow (RCF)/Net Adjusted Debt grows above 50% on a consistent basis.
Greater downstream integration could also have positive implications for PTT's rating.
On the other hand, the ratings may experience downward trend if PTT 1) faces major disappointments in implementing its pipeline and upstream development plans, 2) provides financial support to its associates beyond levels determined by its pro-rata ownership stakes, and 3) sustains a deterioration in its financial metrics, leading to EBIT/Interest falling below 5.0x and RCF/Net Adjusted Debt falling below 20% on a consistent basis. Moody's expectation of lower support level from the Thai government could be negative for PTT's rating.
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.
Sydney
Terry Fanous
Senior Vice President
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100
Sydney
Brian Cahill
Managing Director
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100