Bangkok--6 Mar--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned National Long-term ratings of 'AA+(tha)' to PTT Public Company Limited's ("PTT", rated 'AA+(tha)'/Stable) new THB6.0 billion eight-year unsecured and unsubordinated debentures due 2015.
PTT's ratings reflect its dominance in the gas and oil business in Thailand and its strategic importance and function as a policy vehicle for domestic energy security and development. The ratings are further 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, secure demand via its long-term sales contracts and high barriers of entry to its capital-intensive business. Through its subsidiary, PTT Exploration and Production ("PTTEP"), PTT is one of the country'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. Its gas interests are the main contributor to EBITDA and cash flows from this activity have proven to be relatively stable, thanks to long-term supply and sales agreements with minimum take-or-pay conditions, a cost-plus pricing structure and less volatile gas prices (compared to oil prices).
PTT reported strong growth in consolidated EBITDA, up 25.1% year-on-year, to THB142.7bn for 2006, thanks to solid operating performance of exploration and production business and the consolidation of PTT Chemical. The EBITDA margin decreased to 11.8% in 2006 from 12.3% in 2005, partly on the back of higher oil prices, which in turn led to lower margin-to-selling prices ratio. With strong earnings, PTT's financial position has remained solid, with net adjusted debt to EBITDAR of 0.9x for 2006 (2005; 1.3x) and EBITDA interest coverage of 10.3x (2005; 11.1x).
The commercial operation of phase I of the third pipeline has been delayed to Q107, while the start-up of the Arthit Project has been moved to Q108. The delay in a start-up of the project lowers earnings growth of PTTEP in 2007 while the postponement of the third pipeline's operation and the possible extended period of a new pipeline tariff charge may reduce the earnings growth projection of the gas transmission and distribution business (from last year's 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.
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.
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