Bangkok--20 Feb--Moody's
Moody's Investors Service has today changed the outlook to negative from stable for the Baa3 issuer and senior unsecured bond ratings of IRPC Public Company Limited ("IRPC").
"The rating action reflects that IRPC's weak results in 4Q2008 and for full-year 2008 which were announced yesterday, 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 IRPC's operating performance over the medium term."
"The company's Baa3 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.
IRPC'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 the rapidly deteriorating market environment. As a result, IRPC reported a net loss of Bt13bn (need to be confirmed by the company) in 2008, compared with a net income of Bt13bn in 2007.
Moody's notes that the management has placed investment expenditure for the second phase under review due to sharply deteriorating market conditions. This includes the petroleum improvement and Euro IV standard compliance projects, at a combined cost of nearly US$1bn. Moody's also notes that the company has recently secured a Bt10bn syndication loan to support its capex plan in the next three years, which demonstrates its capability to tap the local bank market despite challenging credit market conditions.
Further downward rating pressure may evolve if IRPC's core operations suffer from an ongoing deterioration in profitability due to weak refining and petrochemical margins. Financial metrics indicative of this would be retained cash flow ("RCF")/debt dropping below 15%-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 IRPC's underlying performance remains consistent with its Baa3 rating. This could be indicated by RCF/debt remaining above 20% on a consistent basis.
The last rating action with respect to IRPC was taken on May 15, 2007, when the company was assigned Baa3 ratings with a stable outlook.
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.
IRPC is the second largest oil refinery and third largest petrochemicals producer in Thailand. It is one of six domestic oil refiners and suppliers of petroleum products in the country.
IRPC's refinery has a nameplate capacity of 215,000 barrels per day ("bpd"). At the same location, it also produces naphtha and reformate-based petrochemicals, and is a leading producer of styrene and its derivatives in Thailand.
Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
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Terry Fanous
Senior Vice President
Corporate Finance Group
Moody's Investors Service Pty Ltd
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