Bangkok--3 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed IRPC Public Company Limited’s (IRPC) National Long-term rating and its senior unsecured debentures at ‘A-(tha)’ and its National Short-term rating at ‘F2(tha)’. The Outlook remains Negative.
IRPC’s ratings are underpinned by its competitive advantage as a fully-integrated oil refining and petrochemicals producer and by its expertise and long track record in downstream petrochemcials in Thailand. The company’s fully-integrated petrochemicals production provides cost competitiveness, a wide range and optimisation of product lines, as well as reduction in earnings volatility. IRPC also benefits from having PTT Public Company Limited (PTT) as its largest shareholder as cost savings will be gained through cooperation with the PTT group. Nevertheless, IRPC’s operational overlap and integration with the PTT group remain limited, given IRPC’s independent and fully-integrated facilities.
IRPC’s credit profile is tempered by its high vulnerability to oil prices, gross refinery margin (GRM) and fluctuations in petrochemical prices which have a substantial impact on earnings and cash flow generation. In Fitch’s view, IRPC needs to improve its refinery complexity to improve production (which will require further capex), although the integration with the PTT group will help mitigate this need. The ratings also reflect its reliance on exports — given the country’s excess capacity in polymers.
The Negative Outlook reflects IRPC’s weak operating performance in 2008, which resulted in higher-than-expected debt and leverage and substantially weakening credit metrics, as well as lower cash flow projections. The uncertainty on demand is a key risk, particularly for a low-complex refiner which has lower margins and less flexibility (Yes, IRPC is a low complex refinery and I also say in general as well as low complex refinery which has lower margins and less flexibility), which could further dampen IRPC's financial performance and position, prolong its de-leveraging and reduce its financial flexibility. However, IRPC plans to reduce capex spending significantly during 2009-2011 which should help maintain its financial leverage consistent with its current rating.
In Q109, IRPC’s revenue declined significantly, down 57.4% yoy to THB26.1bn, due to the collapse in product prices and lower sales volume. The company had a three-week turnaround on its crude distillation unit in February leading to an irregular low utilisation rate of 52%. Its EBITDAR was negative THB2.4bn for Q109. Including the reverse of inventory markdowns (last yes, IRPC had recorded inventory markdowns into cost of goods sold. For Q109, there was a reverse of the markdowns (kind of inventory gains) and put it in cost of goods sold as well) as a result of an increase in feedstock and product prices, IRPC’s EBITDAR was positive THB2.5bn for Q109.
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 it de-leverage faster, would stabilise the Outlook.
Contacts: Lertchai Kochareonrattanakul, Bangkok, +662 655 4760; Ekapan Prompraphant, +662 655 4753; Vincent Milton, +662 655 4759.