Bangkok--8 Nov--Fitch's rating
Fitch Ratings (Thailand) Limited has today affirmed the National Long-term ratings for Aromatics (Thailand) Plc's ("ATC") THB8.0 billion and THB4.0bn secured and amortising debentures at 'A-(tha)' (A minus(tha)). The Outlook on the ratings is Stable.
The ratings reflect ATC's strong ownership structure and support from PTT, its secured long-term feedstock and aromatics sales agreements, flexible feedstock procurement and cost-competitive position, as well as its credit enhancement structure (security and liquidity support). Most of ATC's production output is sold to PTT under long-term contracts, while most of its feedstock is sourced from PTT. The ratings are also underpinned by its fairly strong financial position, although it weakened in the first nine months of 2006 ("9M06"). Its net adjusted debt to last-twelve-month ("LTM") EBITDAR weakened from 1.3x in 2004 to 2.1x in 2005 and further to 3.2x in 9M06, but is likely to maintain at below 3.5x during 2006 to 2008. The capital expenditure reduction and higher value added products from its co-investment in the new aromatics plant with Rayong Refinery Plc ("RRC") should be a positive factor to ATC's credit profile in the medium term, although the investment will increase its leverage in the short term.
PTT, the major shareholder of ATC and RRC, is studying a possible merger of these two affiliates to achieve synergies from the integration. Fitch believes that the merger, if completed, could strengthen ATC's business profile; enhance its economy of scale, expand feedstock and revenues sources and reduce earnings volatility. The impact on ATC's credit profile would also be dependent on the capital and shareholding structure and funding and other costs associated with the merger.
The ratings also take into account ATC's exposure to the highly cyclical nature of the petrochemicals industry with severe feedstock and product price volatilities, as evidenced in 2005 and 9M06. In addition, the agency notes that execution risks arising from new aromatics plant and a relatively large capex plan amid a less favourable operating environment increases operating and financial risks.
The Stable Outlook is based on the expectation that ATC's relatively strong market position and the cash flow from this cyclical upturn will keep its leverage manageable during the construction period of the new plant. Increasing and sustained earnings stability through the cycle and low financial leverage with net debt to EBITDA of below 2.0x on a sustained basis would trigger a rating upgrade. However, an unexpected sustained, sharp decline in product prices and spreads and substantial debt-funded investments would lead to a rating downgrade.
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, Wasant Polcharoen, Vincent Milton; Bangkok, Tel: +662 655 4755
Media Relations: Ching-Yuen Lock, Singapore, Tel: +65 6238 7301; Sylvia McKaige, Singapore, Tel: +65 6336 0095.
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