Bangkok--9 Mar--Fitch Ratings
Fitch Ratings (Thailand) Limited has today revised the rating Outlook on IRPC Public Company Limited (IRPC) to Negative from Stable. At the same time, Fitch affirmed IRPC’s National Long-term rating and its outstanding senior unsecured debentures at ‘A-(tha)’ (A minus(tha)), and its National Short-term rating at ‘F2(tha)’.
The Outlook revision reflects IRPC’s weak operating performance in 2008, which resulted in higher-than-expected debt and leverage, as well as lower cash flow projections. Although IRPC plans to reduce capex spending significantly during 2009-2011, which should help maintain its financial leverage consistent with the current rating, the uncertainty on demand is a key risk, particularly for low complex refiners which have lower margins and less flexibility. The oil refinery and petrochemicals industries face the risk of deepening demand contraction as a result of a worsening global economic recession. This could further dampen IRPC’s financial performance and position, prolong its de-leveraging and reduce its financial flexibility.
IRPC reported negative EBITDAR of THB13.5bn in 2008 due mainly to inventory losses and inventory markdowns as a result of a sharp fall in commodity prices in H208. IRPC suffered more on inventory losses than its peers due to its higher integration level, from oil refinery to downstream petrochemicals. Stripping out inventory losses and inventory markdowns, its EBITDAR was positive THB2.8bn. However, this was still much lower than expected, owing to a lower crude run in H208, and weak product-to-feed margin and lower sale volume of petrochemical products in Q408. Its total debt and net debt increased to THB26.7bn and THB18.2bn at end-2008, respectively. With negative EBITDAR and funds from operations (FFO), IRPC’s credit metric deteriorated considerably in 2008. Nevertheless, its liquidity remains sound. IRPC had cash and cash equivalents of THB8.6bn as well as available committed bank facilities of THB3.1bn at end-2008, enough to cover THB8.3bn short-term debt that will mature over the next 12 months. Meanwhile, the remainder of its debt was THB18.4bn of bonds, which will mature beyond five years.
Although demand and margins are likely to remain weak in 2009-2010, IRPC’s EBITDAR and FFO are expected to improve yoy in 2009, thanks to an expected absence of large inventory losses. Together with large capex reduction, its adjusted net debt to EBITDAR is projected to stay in a range of 3.2x-4.2x during 2009-2011, and decline to around 2.5x in 2012.
IRPC’s ratings are underpinned by its competitive advantage as a fully-integrated oil refining and petrochemicals producer, and its expertise and long track record in downstream petrochemicals in Thailand. 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 agency also notes that IRPC benefits from having PTT Public Company Limited (PTT) as its largest shareholder, as cost savings will be gained through cooperation with the PTT group. However, IRPC’s operational overlap and integration with the PTT group is likely to remain limited, given IRPC’s independent and fully-integrated facilities.
Fitch views that a prolonged or deeper-than-expected industry downturn, as well as higher-than-expected financial leverage could negatively affect IRPC’s ratings. On the other hand, stronger-than-expected cash flow generation, which could help de-leverage faster, would serve to stabilise the Outlook of the company.
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, +662 655 4753; Vincent Milton, +662 655 4759.