Bangkok--22 May--Fitch Ratings (Thailand)
Fitch Ratings-Bangkok/Singapore-22 May 2007: Fitch Ratings (Thailand) Limited has today affirmed Thailand's PTT Chemical Public Company Limited's (PTTCH) National Long-term Rating at 'A+(tha)' with Stable Outlook, and its National Short-term Rating at 'F1(tha)'. At the same time, the agency has affirmed the rating on PTTCH's outstanding senior unsecured debentures at 'A+(tha)' and the rating on its outstanding secured debentures at 'AA-(tha)' (AA minus(tha)).
The ratings of PTTCH are based on the high level of business and operational integration with its major shareholder PTT Public Company Limited (PTT, 'AA+(tha)'/Stable), as it is PTT's main gas-based olefins arm; PTT holds a 55% stake in PTTCH. Also, PTTCH has a favourable feedstock arrangement with PTT, as well as its significant size and increasing level of production integration via downstream units, which should help support earnings growth and reduce earnings volatility in the longer term. The ratings are also underpinned by PTTCH's strong financial position and liquidity profile, providing financial flexibility despite a period of major capacity expansion.
PTTCH has announced its large capital expenditure plans for 2007-2011, including a large scale olefins expansion through the new gas-based olefins cracker and existing plant improvements, as well as new investments in the downstream polymers and specialty chemicals. PTTCH has earmarked THB85.5 billion for these new investments, which will be largely funded by the proceeds from its THB28bn capital increase in late 2006, and the new debt-funded programme. PTTCH's net debt and financial leverage are likely to increase from the current net cash position, although the company expects it should be able to manage its net debt to EBITDA ratio at a relatively comfortable level at less than 2.0x over the expansion period. Meanwhile, the strong liquidity profile, supported by the available cash of THB31.6bn at end-Q107 and large undrawn committed credit facilities - including THB2.6bn working capital facilities with financial institutions, a USD135m revolving credit facility and USD100 million in trade credit support from PTT - should continue to provide financial flexibility.
Nonetheless, the ratings take into account the cyclical nature of the petrochemicals industry, the execution risks arising from new projects, a large investment plan amid a less favourable operating environment and the company's relatively high exposure to a single market.
PTTCH reported strong earnings performance in 2006, with EBITDA growth of 33% yoy to THB23.6bn, largely driven by higher olefins and HDPE sales volume and the strong product-to-feedstock margins given strong petrochemicals prices. For Q107, PTTCH's EBITDA declined by 29% yoy to THB3.9bn, due to a plant shutdown for scheduled maintenance and the tie-in of additional 190,000 metric tons per annum capacity from the de-bottlenecking Phase I. EBITDA margins also dropped to 30% in Q107 from an average of 33% in 2006, as a result of its lower product-to-feedstock margins given a rise in feedstock costs.
The Stable Outlook is based on the expectations that the improving economies of scale through upstream expansions, the increased production integration via downstream expansions and the favourable feedstock arrangements will help maintain PTTCH's cost competitiveness and reduce volatility risk during the less favorable industry cycle and keep its financial leverage consistent with the current credit metric.
Contacts: Wasant Polcharoen, Lertchai Kochareonrattanakul, Vincent Milton; Bangkok, Tel: +662 655 4755.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign 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.
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6336 0095.
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