Bangkok--26 Sep--Fitch's rating
Fitch Ratings (Thailand) Limited has today assigned National Long-term ratings of ‘AA+(tha)’ to PTT Public Company Limited’s (“PTT”, rated ‘AA+(tha)’/Positive) two new tranches of up to THB4.0 billion five-year and up to THB8.0bn 10-year unsecured and unsubordinated debentures, due 2011 and 2016, 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 are also underpinned by 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, a secure demand via its 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 (H106: 38%) and oil (H106: 39%) 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.
PTT’s operating performance remained robust in H106, thanks to increased oil prices and continued growth in gas demand. The company’s consolidated EBITDA were THB75.1bn, up 41.1% year-on-year, on the back of sales of THB583.6bn, up 40.8% yoy. With strong earnings, PTT’s financial position has remained solid, with net debt to last-12-month EBITDA of 1.1x for H106 (2005; 1.3x) and EBITDA coverage of 12.6x (2005; 12.9x).
Fitch’s rating concerns focus on the large budgeted capital expenditure, volatile commodity prices exposure, as well as regulatory and political risks. PTT has budgeted THB238.8bn (USD6.0bn) for its five-year investment plan (during 2006 to 2010). The investment plan will be revised in December as a yearly review process. Despite substantial budgeted capital expenditure, PTT’s net debt is expected to increase moderately, thanks to its projected strong earnings growth. As a result, Fitch expects PTT’s financial leverage to likely stay below 2.0x over the next three years.
Recently, the Supreme Administration Court of Thailand accepted a complaint filed by the Foundation for Consumers against the privatization of PTT. In the event of an adverse ruling, resulting in the reverse of the privatisation of PTT, the impact on PTT’s credit should be neutral.
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 and a possible earnings impact from a delay in the Arthit project.
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.
Contacts: Lertchai Kochareonrattanakul +662 655 4760; Wasant Polcharoen +662 655 4763; Vincent Milton +662 655 4759
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