Bangkok--12 Jun--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned an 'A-(tha)' (A minus(tha)) National Long-term Rating to IRPC Public Company Limited's (IRPC) upcoming THB7.0 billion seven-year unsecured and unsubordinated debentures due 2014, as well as its THB3.0bn 10-year unsecured and unsubordinated debentures due 2017. The Outlook is Stable.
The ratings reflect IRPC's competitive advantage as a fully integrated oil refining and petrochemicals producer, its expertise and long track record in downstream petrochemicals in Thailand, and the benefits from PTT Public Company Limited (PTT) as its largest stakeholder. The fully integrated petrochemicals production provides cost competitiveness, a wide range and optimisation of product line, as well as a reduction of earnings volatility. The ratings are also based on IRPC's financial position with a substantially lower leverage due to recapitalisation and improving cash flow generation, though Fitch notes it is likely to weaken in the medium term due to new investments.
IRPC's financial position has improved significantly since 2004 owing to its debt restructuring and the recovery in the oil refining and petrochemicals businesses. Its net adjusted debt/last-twelve-month EBITDAR decreased substantially to 1.4x in 2006 and 1.0x in Q107, from 13.2x in 2003; its EBITDA/gross interest rose to 4.1x in 2006 and 13.1x in Q107, from 1.2x in 2003. However, more aggressive investments in 2008 to 2011, given the execution of the second phase of its investment plan, will result in higher debt and leverage from 2009 to 2011, while cash flows from the new projects should reduce leverage thereafter.
Fitch also notes that there may be some cost savings with the PTT group, mainly related to crude supply management and product offtake and swap. However, its operational overlap and integration to the PTT group is likely to remain limited, given IRPC's independent and fully integrated facilities.
The ratings also take into consideration its high exposure to volatile gross refining margins (GRM) and petrochemicals prices, which have a substantial impact on its earnings and cashflow generating capability. Additionally, the ratings reflect a need to improve its refinery complexity to meet more stringent standards and improve production (which will require further capital expenditure) and its relatively high reliance on exports, given the country's excess capacity in polymers.
The Stable Outlook reflects the agency's expectation that IRPC will maintain its competitive advantage and relatively strong market position supported by its fully integrated oil refining and petrochemicals capabilities; Fitch also expects IRPC to keep its leverage manageable during cyclical downturns and the higher investment periods.
IRPC (formerly Thai Petrochemical Industry Public Company Limited) was incorporated in 1978 with an initial focus on downstream petrochemicals production. With a backward integration to the oil refining business, IRPC is the first and only fully integrated refining and petrochemicals manufacturer in the country. The company is the second largest oil refiner with a capacity of 215,000 bpd and the third largest petrochemicals producer in Thailand. IRPC also operates jetty and deep sea port facilities and a 108MW power plant to support its refining and petrochemicals businesses. After a prolonged period of restructuring following the 1997 crisis, IRPC completed recapitalisation at the end of 2005, bringing in new major shareholders, PTT and a consortium of government-linked entities. Since then, PTT has effectively controlled and managed IRPC as its single largest shareholder with a 31.5% stake at end-2006, while the other consortium investors together hold a 30% stake.
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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