Bangkok--20 Feb--Moody's Investors Service
Approximately US$300 million of debt securities affected
Moody's Investors Service has today changed the outlook to negative from stable for the Baa2 issuer and senior unsecured bond ratings of PTT Aromatics and Refining Public Company Limited ("PTTAR").
"The rating action reflects that PTTAR's weak results in 4Q2008 and for full-year 2008 which were announced today, combined with Moody's concerns over continued weakness in the oil refining sector, could lead to a sustained weakening in the company's financial profile", says Tony Tsai, a Moody's Senior Vice President.
"Moody's is concerned over the expected challenging operating environment in 2009 and possibly 2010 when demand for refined and petrochemical products is likely to remain weak, while considerable new supply is expected to come on-stream", Tsai says, adding, "This challenging environment could continue to pressure PTTAR's operating performance over the medium term."
"The company's Baa2 rating has limited cushion to absorb such downside risk, with key financial metrics likely to exceed the tolerance level set for the rating in 2009 and possibly 2010," he says.
PTTAR's weak performance in 4Q2008 was caused by a combination of massive inventory loss (due to the precipitous fall in oil prices), soft operating margins, and declining utilization rate in the wake of a rapidly deteriorating market environment. As a result, PTTAR reported a net loss of Bt8.5bn in 2008, compared with a net income of Bt18.0bn in 2007.
Moody's notes that the company has completed its major expansion program, and therefore its capital spending in the next three years is likely to be substantially lower than in 2007-2008. As a result, Moody's expects the company to gradually reduce its total debt and strengthen its balance sheet. However, the speed of leverage reduction will be subject to improving market conditions, of which there is currently low visibility.
Further downward rating pressure may evolve if PTTAR's core operations suffer from deteriorating profitability due to weak refining and petrochemical margins. Financial metrics indicative of this would include debt to EBITDA exceeding 2.5x and/or retained cash flow ("RCF")/debt dropping below 20% on a sustained basis. Continued negative free cash flow generation would also be likely to pressure the rating.
On the other hand, the rating outlook could revert to stable if its operation improves, such that PTTAR's underlying performance remains consistent with its Baa2 rating. This could be indicated by debt/EBITDA remaining in the 1.5x-2.5x range and RCF/debt remaining within the 20%-30% range.
The last rating action with respect to PTTAR was taken on December 27, 2007, when the ratings were upgraded to Baa2 from Baa3.
In assigning the rating, Moody's has made reference principally to the Global Independent Refining and Marketing Industry rating methodology, which can be found at www.moodys.com in the Credit Policy & Methodology, in the Ratings Methodologies subdirectory.
PTTAR, based in Thailand, is an integrated petrochemicals and refining company. It owns a complex refinery in Thailand's Rayong Province with a production capacity of 280,000 barrels per day ("bpd").
The company is also involved in the production of aromatics products, including benzene, paraxylene, orthoxylene, mixed xylenes and cyclohexane with an overall production capacity of 2.1 million tones per annum.
Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
Sydney
Terry Fanous
Senior Vice President
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100