Bangkok--4 Jun--Moody's Investors Service
Moody's Investors Service has changed the outlook to negative from stable for the A2 local currency issuer rating of PTT Public Company Ltd (PTT).
At the same time, Moody's has affirmed the company's A3 foreign currency issuer rating and foreign currency senior unsecured bank loan rating, and A2 foreign currency bond rating with negative outlook.
"The change in outlook reflects an expected increase in PTT's consolidated leverage due to debt-funded investments over the next three years which -- coupled with a likely contraction in profits and cash flow generation, in view of subdued market conditions -- will in turn reduce the cushion within its current A3 fundamental rating," says Renee Lam, a Moody's Vice President and Senior Analyst.
PTT's major upstream subsidiary, PTT Exploration & Production Public Company Ltd (PTTEP, rated A2), has planned for E&P expenditure of about THB330-340 billion over 2009-2013, or averaging THB66-68 billion annually, and representing a substantial rise from the yearly average of THB41 billion over the last three years.
PTT itself has also budgeted THB230 billion in capital expenditure, largely for its gas business, over 2009-2013.
While PTT's historically low level of leverage affords it a certain level of debt capacity, Moody's expects its planned sizable capital spending to weaken its retained cash flow (RCF)-to-net debt ratio -- after adjustment for the pro-rata shares of the debt of its affiliates -- to hover around 20% in 2009-2010, a level which is thin for its rating.
PTT's standalone A3 rating continues to be underpinned by its relatively stable cash flow -- derived from its monopoly in gas transmission and distribution in Thailand -- and the strength of its upstream subsidiary PTTEP. However, it also reflects PTT's relatively small production base and higher degree of domestic orientation when compared to other major integrated oil & gas companies.
PTT's rating incorporates the strong credit support that Moody's believes the Thai government is likely to provide -- under the Joint Default Analysis approach applied to government-related issuers -- in view of its 67% effective stake in the company and PTT's strategic importance to the country. Such an approach provides a one-notch uplift to the final A2 rating.
The rating outlook could return to stable if PTT successfully manages and implements its investment plans, and/or demand strengthens, such that the company consistently maintains adjusted RCF / net debt above 25% and/or EBIT / interest above 5x.
On the other hand, the rating could experience downward pressure if adjusted RCF / net debt drops below 20%, or EBIT/interest falls below 5x, which could be a result of 1) PTT facing major disappointments in implementing its expansion plans; 2) further material downturns in the energy sectors beyond current expectations; 3) PTT provides financial support to its associates beyond levels determined by its pro-rata ownership stakes. Any reduction in the support level from the Thai government to PTT would also be negative for the rating.
The last rating action on PTT was on December 5, 2008 when Moody's changed to negative from stable the outlook for the company's A3 foreign currency issuer rating and foreign currency senior unsecured bank loan rating and A2 foreign currency bond rating, following the change in outlook to negative for Thailand's A3 foreign currency bond country ceiling, Baa1 foreign currency deposit ceiling, and Baa1 foreign and local currency government ratings.
The principle methodology used in rating PTT was the Global Integrated Oil & Gas Industry rating methodology (October 2005), which can be found at www.moodys.com in the Credit Policy & Methodology directory, in the Ratings Methodologies subdirectory.
PTT -- 52% directly owned by the Ministry of Finance with a further 15% held through Vayupak Mutual (government-invested funds) -- is Thailand's fully integrated oil, gas and petrochemical company.
Hong Kong
Renee Lam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Singapore
Tony Tsai
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308