Bangkok--4 Jun--Moody's Investors Service
Moody's Investors Service has changed to negative from stable the outlook for the A2 local currency issuer rating of PTT Exploration and Production Public Company Ltd (PTTEP).
At the same time, Moody's has affirmed its A3 foreign currency issuer rating with negative outlook.
"The change in outlook reflects Moody's expectation that PTTEP's credit profile will weaken over the medium term as a result of a substantial increase in the company's planned capital expenditures over the next few years," says Renee Lam, a Moody's Vice President and Senior Analyst.
"These front-ended and sizeable exploration & production (E&P) investments will lead to increasing levels of reinvestment risk for PTTEP; further, the expected rise in debt to fund these investments will weaken the company's leverage measures, which have been a key support for its rating," adds Lam.
PTTEP has planned for E&P expenditures 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.
PTTEP has also shown an increased appetite for acquisitions to gain immediate access to reserves, as highlighted by its recent purchase of reserves in Australia for US$153 million.
Moody's had previously expressed concern over the incremental reinvestment risk that PTTEP faces with its sizeable levels of development capex and delays in its Arthit project. With the new investments and consequently more debt issuance, such risk has risen further.
Moody's notes that PTTEP's stand-alone A3 rating continues to incorporate the stability afforded by its long-term gas sales contracts, and its strategic role as a source of gas supply to Thailand's power sector.
Countering these strengths are its high medium-term capex, its geographical concentration, as well as rising reinvestment risk and leverage.
PTTEP's final A2 rating factors in a one-notch uplift based on Moody's assessment of the strong credit support that its parent, PTT Public Company Ltd (rated A2), is likely to provide in case of distress.
The rating outlook could return to stable if PTTEP successfully manages and implements its investment plans and its balance sheet, and/or demand strengthens, such that the company can consistently maintain adjusted RCF-Sustaining capex / debt above 45%-50%.
On the other hand, the rating could experience downward pressure if adjusted RCF-Sustaining capex / debt drops below 40%, which could be a result of 1) PTTEP facing major disappointments in implementing its reserve replacement and expansion plans; 2) a further material downturn in the energy sectors beyond current expectations. Any reduction in the level of support from PTT would also be negative for the rating.
The last rating action on PTTEP was on December 5, 2008 when Moody's changed to negative from stable the outlook for the company's A3 foreign currency issuer 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 PTTEP was the Global Independent Exploration and Production Industry rating methodology (December 2008), which can be found at www.moodys.com in the Credit Policy & Methodology directory, in the Ratings Methodologies subdirectory.
PTTEP is engaged in the exploration and production of crude oil, condensate and natural gas. Established by the Petroleum Authority of Thailand (now PTT) in 1985 as part of a national energy strategy, it is now a listed company with PTT retaining 65.7% ownership.
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