Bangkok--22 Jan--Fitch Ratings
Fitch Ratings (Thailand) Limited has today revised the rating Outlook on PTT Public Company Limited’s (“PTT”) National rating to Stable from Positive. At the same time, the agency has affirmed PTT’s National ratings at Long-term ‘AA+(tha)’ and Short-term ‘F1+(tha)’ and the National ratings on PTT’s outstanding debentures amounting to THB74 billion at Long-term ‘AA+(tha)’.
The change in Outlook is based on Fitch’s view that a continuing large capital expenditure budget and a downward revision of earnings projection to reflect delays in some projects, including the Arthit project and the third pipeline, and lower profit margins as a result of higher costs will result in a higher leverage than previously expected and extend the period of negative free cash flow generation. PTT has also significantly increased its exposure to more volatile petrochemicals sector over the past couple of years, notwithstanding some integration and diversification benefits.
PTT’s credit profile remains very strong reflecting 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 and oil sales. The gas interests are the main contributor to EBITDA, and cash flows from this activity have proved relatively stable, thanks to long-term supply and sales agreements with minimum take-or-pay conditions, a cost-plus pricing structure and generally less volatile gas price relative to oil prices.
PTT reported strong growth in consolidated EBITDA, up 29.3% yoy, to THB112.3bn for the first nine months of 2006 (“9M06”), thanks to solid operating performance of E&P and a consolidation of PTT Chemical Plc. EBITDA margin decreased to 12.0% in 9M06 from 12.7% in the same period last year, partly attributable to higher oil prices, which led to lower margin-to-selling prices ratio. With strong earnings, PTT’s financial position has remained solid, with net debt to last-12-month EBITDA of 1.1x for 9M06 (2005; 1.3x) and EBITDA coverage of 11.1x (2005; 11.2x).
Commercial operation of phase I of the third pipeline is delayed to Q107, while the start-up of Arthit project will be extended to Q108. The delay in a start-up of Arthit project lowers earnings growth of PTTEP in 2007, and the postponement of the third pipeline’s operation and the possible extended period of new pipeline tariff charging would reduce earnings growth projection of T&D business (from the last year projection).
The ratings also take into account the company’s large budgeted capital expenditure, volatile commodity prices exposure, as well as regulatory and political risks. PTT has announced its five-year investment plan for 2007 to 2011, budgeted at THB210bn. The investment for 2007 to 2010 has been revised up by around THB36bn from last year’s plan, largely owing to the add-up of the seventh gas separation plant, the project cost revision and a delay of the third pipeline. With continuing large capex budget, net debt and leverage are expected to increase moderately. Nevertheless, its financial position and liquidity should remain strong and in line with its financial policy, targeting a net debt/EBITDA ratio of below 2.0x.
The agency notes that the Thai government is in the process of amending the Royal Decree determining powers, rights and benefits of PTT in order to transfer state powers back to an independent regulator, although this should not have a significant impact on PTT’s operation.
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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