Bangkok--12 Oct--Fitch Ratings
Fitch Ratings has today affirmed PTT Public Company Limited's (PTT) Long-term foreign currency Issuer Default Rating (IDR) at 'BBB', Long-term local currency IDR at 'A-', Short-term foreign currency IDR at 'F3', National Long-term rating at 'AAA(tha)', National Short-term rating at 'F1+(tha)' and the National Long-term rating on its senior unsecured debentures at 'AAA(tha)'. The Outlook is Stable.
The ratings reflect PTT's dominance in Thailand's gas and oil business, and its strategic importance and function as a policy vehicle for the country's energy security and development. Fitch views PTT as very likely to maintain its natural monopoly in gas transmission and distribution, via its established network, secured demand under long-term sales contracts and high barriers to entry. The company is also one of the major exploration and production (E&P) companies in Thailand, through its E&P subsidiary, PTT Exploration and Production Public Company Limited (PTTEP). PTT also off-takes and resells virtually all of Thailand's natural gas, and has the largest market share of LPG and oil sales. PTT's ratings are also supported by its good management track record and solid cash flow generating capability. Gas interests are the main contributor to its EBITDA, and cash flows have proven relatively stable as a result of long-term supply and sales agreements with minimum take-or-pay conditions, a cost-plus pricing structure and generally less volatile gas prices (relative to oil prices).
Nevertheless, PTT's credit profile is tempered by its vulnerability to fluctuations in commodity prices, significant budgeted capital expenditure, exposure to regulatory and political risks, and some foreign exchange risk. In 2009 lower hydrocarbon prices will lower PTT's cash flow generation and weaken its credit metric. Fitch also notes that PTT has budgeted THB229bn for its five-year investment plan (2009-2013), while PTTEP has budgeted THB341bn capex for 2009-2013; this is significantly larger than the 2008-2012 capex plan of THB192bn, due to increasing production and development projects.
Under its parent/subsidiary methodology, Fitch rates PTT on a bottom-up basis, and assigns a one-notch uplift to reflect implicit support from the government. However, as Thailand's Long-term local currency IDR is now at the same level as PTT's standalone local currency IDR of 'A-', a one-notch uplift is not relevant. PTT's Long-term foreign currency IDR of 'BBB' is capped by that of Thailand's, given the state's majority ownership in PTT and as the company's main operations are concentrated in the country.
PTT reported weakened operating performance in H109 mainly on the back of a collapse in oil and gas product prices - its consolidated operating EBITDAR was THB61.4bn in H109, down 25.4% yoy. In addition, PTT's financial position weakened slightly in H109 due to higher debt and weaker cash flow. Its adjusted net debt to last-12-month EBITDAR increased to 1.8x in H109 (2008: 1.0x), while its LTM FFO adjusted net leverage rose to 2.1x in H109 (2008:1.1x). With a continuing large capex plan, coupled with expected weak operating cash flow, net debt to EBITDA will likely rise above its financial guideline of under 2.0x in 2009. Fitch, however, views that PTT's financial position and liquidity are likely to remain strong, and its net debt to EBITDA should be in line with the company's financial policy from 2010.
The Stable Outlook reflects the agency's expectation that PTT will maintain its strong market positions, particularly in the gas business, and its financial profile will be kept consistent with the current ratings throughout the industry cycle, and that the government maintains a majority ownership. Factors that could affect PTT's ratings include regulatory changes, unfavourable changes to gas sales contracts and pipeline tariffs, a sustained deterioration in financial leverage and any changes in the sovereign rating.
Contacts: Lertchai Kochareonrattanakul, Bangkok, +662 655 4760; Steve Durose, Sydney, +612 8256 0307; Vincent Milton, Bangkok, +662 655 4759.
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.
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