Bangkok--29 Jun--Moody's Investors Service
Approximately US$2.3 billion of debt securities affected
Moody's Investors Service has today downgraded to A3 from A2 PTT Public Company Ltd's (PTT) local currency issuer rating and foreign currency bond rating. At the same time, Moody's has affirmed its A3 foreign currency issuer rating. The ratings outlook is negative, in line with the negative outlook of Thailand's sovereign rating.
"The downgrade primarily reflects an expected shift in PTT's financial profile to more aggressive levels due to debt-funded investments which are planned over the next 3 years," says Renee Lam, a Moody's Vice President and Senior Analyst.
"PTT's business risk has also risen due to its increased focus on international operations and new businesses potentially through acquisitions, and also a weakened credit profile of its major subsidiary PTT Exploration and Production Public Company Limited (PTTEP, A3/negative)," adds Lam.
On a consolidated basis, PTT's capital expenditure rose to THB127 billion in 2009, and would average about THB120-160 billion annually over 2010-2013, well above historical levels of THB85-90 billion in 2006-2008.
These expenditures are largely for upstream E&P investments by its subsidiary PTTEP, and PTT's own investments in the gas business.
PTT operates on a smaller scale when compared to its international integrated oil & gas peers, and its historically conservative use of debt has been a major support to its previous rating. Nonetheless, leverage is expected to increase as it plans to issue more debt to fund its investments.
Debt leverage, as measured by retained cash flow (RCF) to net debt, would remain at 20-25% over the next 3 years. The projected higher debt-to-capital ratio of about 40-45% -- compared to around 35% before -- also signifies management's increased appetite for debt. Moody's believes that these expected metrics, coupled with the higher event risk of potential M&As, now position PTT more appropriately at a stand-alone
Baa1 level.
PTT's stand-alone Baa1 rating continues to be underpinned by its relatively stable monopoly position in gas transmission and distribution in Thailand, and which accounts for about 30% of its EBITDA.
PTT's final A3 rating incorporates the credit support that Moody's believes the Thai government (Baa1/negative) is likely to provide -- under the Joint Default Analysis approach applied to government-related issuers -- in view of its 67% effective stake in the company and PTT's strategic importance to the country. Such an approach results in one-notch uplift to the final A3 rating.
The negative ratings outlook reflects the negative outlook of Thailand's sovereign rating.
Near-term upward rating pressure is limited given the negative outlook.
The outlook will be stabilized if Thailand's sovereign rating outlook is reverted to stable.
On the other hand, PTT's ratings could experience downward pressure if Thailand's sovereign ratings are downgraded, or if there is any reduction in the expected support from the Thai government to PTT.
Downward rating pressure may also emerge if PTT's standalone credit fundamental weakens, which may be signified by adjusted RCF / net debt dropping below 15-20%. This could be a result of 1) PTT facing major disappointments in implementing its expansion plans; 2) material downturns in the energy sectors; 3) PTT funds its investments more aggressively with debts than currently expected; 4) PTT provides financial support to its associates beyond levels determined by its pro-rata ownership stakes; or 5) the company engages in aggressive shareholder return initiatives.
The last rating action on PTT was on June 3, 2009 when Moody's changed to negative from stable the outlook for the company's A2 local currency issuer rating.
The principle methodology used in rating PTT was Moody's "Global Integrated Oil & Gas Industry," which can be found at www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab.
Other methodologies and factors that may have been considered in the process of rating PTT can also be found in the Rating Methodologies sub-directory on Moody's website.
PTT -- 52% directly owned by the Ministry of Finance with a further 15% held through Vayupak Mutual (government-invested funds) -- is Thailand's fully integrated oil, gas and petrochemical company.
Hong Kong
Renee Lam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077
Hong Kong
Gary Lau
Managing Director
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (852) 3551-3077