Bangkok--12 Mar--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed PTT Aromatics and Refining Public Company Limited’s (PTTAR) National Long-term at ‘A-(tha)’ and National Short-term at ‘F2(tha)’.The agency has also affirmed the ratings for PTTAR’s senior unsecured debentures at ‘A-(tha)’ and secured and amortising debentures at ‘A(tha)’. The Outlook is Stable.
The ratings reflect PTTAR’s complex refinery integrated with large aromatics production, which provides a wider product range and optimisation of product lines and which, to some extent, reduces earnings volatility. The ratings also take into account strategic and operational links to PTT Public Company Limited (PTT; ‘AAA(tha)’/Stable), its relatively large operating scale and cost-competitive position. PTTAR sources condensate mostly from the Gulf of Thailand, secured under a long-term contract with PTT, while most of its aromatics products are sold to PTT under long-term sales agreements.
PTTAR’s earnings improved considerably in 2009, due to hedging gains, inventory gain, a rebound of aromatics product-to-feed margins and higher production; these offset a weak market gross refinery margin (GRM). The company generated EBITDAR of THB19.6bn in 2009 (2008: negative THB9.2bn); excluding inventory write-down/back, EBITDAR was THB14.5bn (2008: negative THB4.0bn). Despite higher-than-expected net debt caused by increased working capital needs, strong cash flow generation led PTTAR’s financial leverage, measured by adjusted net debt to EBITDAR, to improve to 3.9x in 2009 (3.4x excluding subordinated debt) from a negative EBITDAR in 2008.
PTTAR’s credit profile is constrained by its high vulnerability to oil prices and fluctuations in GRM, and the cyclicality of its aromatics business. PTTAR is also exposed to supply risk, as Thailand is highly dependent on foreign oil supplies. The domestic oil refinery and petrochemicals industries are facing the risk of large new capacity, while demand outlook remains weak, although Fitch expects gradual demand recovery for 2010. This is likely to continue to put pressure on refining margins, petrochemicals spreads and utilisation in 2010.
The Stable Outlook reflects the agency’s expectation that PTTAR will maintain its relatively strong market position, supported by integrated refining and aromatics operation and cost competitiveness, and that it will gradually de-leverage over the medium-term.
Positive ratings triggers would include strong improvement in profitability resulting in significant de-leveraging and sustained lower financial leverage. However, a further increase in financial leverage, sustained low gross integrated margin, or a large increase in debt-funded investments, would negatively affect the ratings.
Applicable Criteria available on Fitch’s website at www.fitchratings.com: “Corporate Rating Methodology,” dated November 24, 2009; and “Credit Rating Methodology for Refiners,” dated November 9, 2007.
Contacts: Ekapan Prompraphant, Lertchai Kochareonrattanakul, Vincent Milton, Bangkok, +662 655 4755.