Bangkok--8 Apr--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned National Long-term ratings of 'A-(tha)' (A minus(tha)) to PTT Aromatics and Refining Public Company Limited's (PTTAR) new five-year senior unsecured debentures with the issue size of up to THB15bn. The proceeds from these debentures will be earmarked for refinancing and working capital. PTTAR's National Long-term rating is 'A-(tha)' (A minus(tha)) with a Stable Outlook. PTTAR's ratings reflect its strategic and operational links to PTT Public Company Limited (PTT, 'AAA(tha)'/Stable), as well as its larger operating scale and more flexible and diversified operations after the amalgamation of The Aromatics (Thailand) Public Company Limited and Rayong Refinery Public Company Limited; this should to a certain extent help reduce overall earnings volatility. The ratings are based on PTTAR's secured long-term feedstock and product off-take agreements, its modern and complex refinery and its cost competitiveness.
PTTAR's credit strengths are tempered by its high vulnerability to oil prices and gross refining margin fluctuations, as well as the cyclicality of its aromatics business. The ratings reflect a material weakening in PTTAR's financial leverage and worse-than-expected earnings growth, resulting in lower financial flexibility. Its debt and net debt increased significantly to THB70.8bn and THB69.8bn, respectively, at end-2008 from THB35.8bn and THB33bn at end-2007, respectively, due to substantially weak operating cash flows and large capex. Its cash flow generation was lower than expected owing mainly to inventory losses and inventory markdowns as a result of a sharp fall in commodity prices in H208, as well as weak product-to-feed margin. PTTAR reported negative EBITDAR of THB9.4bn in 2008. Stripping out inventory losses and inventory markdowns, its EBITDAR was positive THB3.1bn. With negative EBITDAR and funds from operations, PTTAR's credit metric deteriorated considerably in 2008.
Fitch expects the company's financial leverage to improve in 2009 and 2010, given an expected absence of large inventory losses and lower capex. Nevertheless, a significant de-leveraging is not expected over the next two years, given the weak outlook in the refining and aromatics businesses and the company's planned capex. Its adjusted net debt to EBITDAR is likely to remain high during 2009-2011, before falling to around 2.5x by 2012.
The Stable Outlook reflects Fitch's expectation that PTTAR will maintain its relatively strong market position, supported by integrated refining and aromatics operation and cost competitiveness, and gradually de-leverage over the medium-term. A further increase in financial leverage (adjusted net debt to EBITDAR is above 6x in 2009) and sustained low gross refining margin (excluding inventory gains and losses) at below USD3.50 per barrel for 18-24 months, could negatively affect the ratings. However, strong improvement in profitability resulting in significant de-leveraging and sustained lower financial leverage would be positive for the ratings.
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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