Bangkok--13 Nov--Fitch Ratings
Fitch Ratings (Thailand) has today affirmed the ‘F1(tha)’ Short-term National rating of ESSO (Thailand) Public Company Limited’s (ESSO) up to THB8.0bn bills of exchange (B/E) revolving programme. Under the programme, the maturity of each series of the B/E will not exceed 270 days.
The rating reflects ESSO’s complex refinery capacity, competitive raw material acquisition, cost competitiveness, and established brand name. Also, the integration into paraxylene (PX) production provides a wider product range and optimisation of product lines, and partly reduces the volatility of its refining margins. The rating also reflects operational and financial support from ESSO’s ultimate parent, Exxon Mobil Corporation (ExxonMobil, ‘AAA’/‘F1+’/Stable). The ExxonMobil group holds a majority stake in ESSO. Seven out of 12 directors on ESSO’s board are from ExxonMobil affiliates, while four are independent directors. Several of the company’s senior management have also been assigned by ExxonMobil group. ESSO is able to leverage on its parent’s worldwide procurement network for crude oil and refined products, and utilise ExxonMobil’s technology and engineering services, human resource, and R&D to improve its operational efficiency.
ESSO’s credit profile is tempered by its high vulnerability to oil prices and gross refinery margin (GRM) fluctuations, as well as the cyclicality of its PX business. In addition, ESSO is exposed to supply risk as Thailand is highly dependent on foreign oil supplies (although this is mitigated by ExxonMobil’s global network), as well as single production site risk.
ESSO’s profitability improved in H109 after a weak performance in 2008. It had EBITDAR of THB8.8bn in H109 (2008: negative THB6.9bn), thanks to inventory gains (following losses in 2008), higher utilisation rates and improved PX product-to-feed margin. Together with an absence of a dividend payout in H109, ESSO’s free cash flow improved significantly to THB3.9bn (2008: negative THB2.2bn), while its net debt decreased to THB23.2bn (2008: negative THB27.3).
Fitch expects ESSO’s performance in H209 to weaken as GRM and PX product-to-feed margins have been depressed by large new refining and PX supplies influx. Despite expected weaker performance in H209, the strong performance in H109 is likely to support ESSO’s 2009 overall earnings. However, Fitch views that the oil refining and petrochemicals business is likely to face tougher operating conditions in 2010. Additional refining and petrochemicals capacity will continue to be a key negative factor, while the demand outlook remains weak in 2010. Fitch notes however that ESSO’s weak earnings outlook will be partly mitigated by its long term approach to disciplined cost management.
ESSO and its predecessor were incorporated, since 1965, as part of the ExxonMobil Group to operate oil refining and marketing and petrochemical businesses in Thailand. ESSO has since developed to become a leading oil refining and marketing company in Thailand, with integrated petrochemicals production. It is the third-largest domestic oil refiner (in terms of crude distillation) with a maximum rated capacity of 177,000 barrels per day and the second-largest PX producer in Thailand with a capacity of 500,000 tonnes per year. In addition, ESSO operates lube oil, solvent and plasticisers businesses, although their contributions to ESSO’s consolidated operating profit are quite small. ESSO is 66% owned by ExxonMobil Group, 7.3% owned by Ministry of Finance, with the remainder held by the public.
Contacts: Ekapan Prompraphant, +662 655 4753; Lertchai Kochareonrattanakul, Bangkok, +662 655 4760; Vincent Milton, +662 655 4759.