Bangkok--12 Nov--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a 'F1(tha)' Short-term National rating to ESSO (Thailand) Public Company Limited's (ESSO) up to THB8.0bn bills of exchange (B/E) revolving programme, under which the maturity of each series will not exceed 270 days.
The rating reflects ESSO's complex refinery, competitive raw material acquisition, cost competitiveness, and established brand name. The integration into paraxylene (PX) production provides a wider product range and optimisation of product lines, and reduces the volatility of its refining margins. The rating also reflects the operational and financial support from Esso's ultimate parent, Exxon Mobil Corporation (ExxonMobil, 'AAA'/'F1+'/Stable); ExxonMobil's majority stake in ESSO allows it to control the appointment of directors to ESSO's board. It has also assigned several of the company's senior management from ExxonMobil and its affiliates. In addition, ESSO is able to leverage on its parent's worldwide procurement network for crude oil and refined products and utilise ExxonMobil's technology and engineering services, human resources, and R&D to improve its operational efficiency. ExxonMobil has shown strong historical financial support - it provided inter-company loans and credit facilities at commercial terms to ESSO, following Thailand's 1997 financial crisis and supported capital raising in 2007.
The rating is also based on ESSO's improved financial position - with a capital injection in H207, an IPO in H108 and strong operating cash flows over the past three years, ESSO's leverage has fallen substantially. The company's adjusted net debt/operating EBITDAR fell to 1.6x at end-H108 from 2.6x at end-2007 and from 7.3x at end-2006. However, this is likely to weaken in the medium-term due to investments.
ESSO's credit profile is tempered by its high vulnerability to oil prices, gross refinery margin (GRM) and petrochemicals price fluctuations, which will have a substantial impact on its earnings and cash flow generation. The rating also reflects moderate capital expenditure to meet new regulation EURO IV fuel standards. The company is exposed to supply risks owing to its high dependence on foreign oil supplies (although mitigated by ExxonMobil's global network), as well as single production site risk.
ESSO reported strong earnings performance in 2007, with operating EBITDAR of THB12.8bn in 2007, up 66.5% yoy, thanks to a huge improvement in GRM to USD7.3/bbl in 2007 from USD3.4/bbl in 2006. Its operating EBITDAR improved further in H108 to THB11.3bn, driven by a record high GRM of USD15.3/bbl due mainly to the inventory gains, despite being partly offset by a sharp decline in product-to-feed margin and lower sales volume of PX. However, as the crude oil prices have fallen significantly, ESSO's profitability in H208 is expected to decline, mainly due to inventory losses.
ESSO was incorporated in 1965 as an affiliate of the ExxonMobil Group to operate oil refining and marketing and petrochemical businesses. It has since grown to become one of the leading oil refining and marketing companies in Thailand, with an integrated petrochemicals production, and is currently Thailand's third-largest domestic oil refiner and the second-largest PX producer. In addition, ESSO operates lube oil, solvent and plasticizers businesses, although their contributions to its consolidated operating profit are quite small. ESSO is 66%-owned by ExxonMobil Group, 7.3%-owned by the Ministry of Finance and the remainder held by the public.
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, Bangkok, +662 655 4760; Ekapan Prompraphant, Bangkok, +662 655 4753; Vincent Milton, Bangkok, +662 655 4759.
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