Bangkok--23 Dec--Fitch Ratings
Fitch Ratings (Thailand) Limited has today placed PTT Aromatics and Refining Public Company Limited’s (PTTAR) ‘A(tha)’ National Long-term rating and ‘A+(tha)’ National Long-term rating on its secured and amortising debentures on Rating Watch Negative (RWN).
The RWN is caused by risks arising from the potential breach of the covenant of the secured debentures. The covenant of the secured debentures requires the company to maintain its net debt (excluding trade financing debt) to EBITDA ratio at below 4.0x and debt service coverage ratio at above 1.25x. With the sharp decline in oil prices since July 2008, PTTAR is likely to generate very weak EBITDA in Q408, due mainly to inventory losses. The company has to carry legal oil reserves (5% of production) as an oil refiner, following its amalgamation in December 2007, which also partly influences its EBITDA generation. Therefore, its net debt to EBITDA is likely to go above 4.0x by the end of the year.
To prevent the breach of the covenant, PTTAR has talked to the bondholders and plans to set up a bondholder meeting to get their consent to remove these two ratios from the covenant, and replace them with a current ratio (current asset to current liability) of above 1.0x and non-current liability to equity of below 2.0x. The company strongly believes that the bondholders will give consent for the change of the covenant. Given the relatively small outstanding amount of the debentures (THB900m after 24 December 2008), PTTAR’s adequate liquidity position, and no potential cross default to its other outstanding debts, the company is very unlikely to undergo financial distress. The RWN will be resolved once PTTAR gets approval from the bondholders for changing the covenant, and the ratings will reflect the reassessment of PTTAR’s credit profile.
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, Ekapan Prompraphant, Vincent Milton; Bangkok, +662 655 4755.
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