Bangkok--5 Jun--Fitch Ratings
Fitch Ratings (Thailand) Limited has today revised the rating Outlook on PTT Chemical Public Company Limited (PTTCH) to Negative from Stable, and affirmed its National Long-term rating at 'A+(tha)' and National Short-term at 'F1(tha)'. The agency has also affirmed its outstanding senior unsecured bonds at 'A+(tha)' and its senior secured debentures at 'AA-(tha)'.
The Outlook revision reflects Fitch's expectations that PTTCH's profitability and cash generation are likely to be materially lower than previously expected and that its debt and financial leverage are likely to be higher than previously expected (given lower-than-expected product-to-feed margins and utilisation rates against high committed capex during 2009-2010). The petrochemicals industry faces the risk of deepening demand contraction as a result of a worsening global economic recession.
PTTCH's ratings are supported by the high level of business and operational integration with PTT Public Company Limited (PTT, 'AAA(tha)'/Stable) as the latter's main gas-based olefins arm. PTTCH has a favourable feedstock arrangement and a product off-take agreement with PTT. The ratings are also based on PTTCH's large and low cost olefins production, with increasing level of downstream integrations, which should help support earnings growth and reduce earnings volatility in the longer-term.
PTTCH's ratings are also underpinned by its strong financial position and liquidity profile, although these are likely to weaken in 2009. Despite poor earnings in Q408, healthy 9M08 operating performance kept 2008 EBITDAR and adjusted net debt/EBITDAR in line with Fitch's expectations. In 2008, PTTCH reported EBITDAR of THB20.7bn, down 17.7% yoy, while adjusted net debt/EBITDAR remained low at 1.2x. In Q109, PTTCH's EBITDAR rebounded to THB1.9bn from a Q408 loss of THB2.5bn. Meanwhile, PTTCH's liquidity remains strong, supported by THB17.2bn of available cash at end-March 2009 and large undrawn committed credit facilities, including working capital facilities of THB12.3bn and revolving credit facility of USD135m from financial institutions, as well as USD100m of trade credit support from PTT.
PTTCH has been aggressively investing since 2007 in olefins base, polymers and special chemicals to enhance the production efficiency and seek new business opportunities and growth. Its capital spending is expected to be high, with a committed budget of around THB30bn during 2009-2010. Given the committed capex and lower cash generation, PTTCH's adjusted net debt/EBITDAR is expected to increase significantly in 2009 but decline to below 2.0x in 2011, driven by the fully commercial run of the new ethane cracker and polymer capacities, and significantly lower capex after 2010. PTTCH's ratings are constrained by its exposure to the highly cyclical petrochemical
A prolonged or deeper-than-expected industry downturn, as well as higher-than-expected financial leverage (measured by adjusted net debt/EBITDAR), that is a failure to bring its leverage back to below 2.0x after 2010, could negatively affect PTTCH ratings. On the other hand, PTTCH's ability to generate and manage cash flows through the down cycle, shown in consistent improvement in profitability and financial leverage would return the Outlook to Stable.
Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign 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: Ekapan Prompraphant, Lertchai Kochareonrattanakul, Vincent Milton; Bangkok, +662 655 4755.
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