Bangkok--2 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.
Fitch remains concerned that IRPC’s expansion plans could delay de-leveraging, despite the company’s improved profitability over the past 12 months. “Refiners and petrochemical producers remain vulnerable in the continued weak operating environment, and if they are to avoid the risk of damage to their financial profiles they need to demonstrate sustained improvements in profitability before embarking on large expansion,” said Lertchai Kochareonrattanakul, Senior Director at Fitch Ratings’ Asia-Pacific corporate ratings in Bangkok.
With improved operating cash flow for the past 12 months, IRPC’s leverage ratios, measured against cash flows, have improved; adjusted net debt/last-12-month (LTM) EBITDAR and LTM funds from operations (FFO) adjusted net leverage have fallen to around 2.2x at end-H110. However, three and five year average leverage ratios remain stretched for the rating category, annual ratios are forecast to increase over the next three years due to the investment plan, and will only come down if profitability exceeds agency forecasts or if capex is delayed. Adjusted net debt/EBITDAR is projected to rise to a range of 3.5x-3.8x during 2010-2011, before falling to below 3.0x again in 2012.
IRPC’s ratings are underpinned by its competitive advantage as a fully-integrated oil refining and petrochemicals producer, and its expertise and long track record in downstream petrochemicals in Thailand. The fully-integrated petrochemicals production provides cost competitiveness, a broad range and optimisation of product lines, as well as a reduction of earnings volatility.
IRPC also benefits from having PTT Public Company Limited (PTT) as its largest shareholder, as cost savings can be gained through cooperation with the PTT group. Nevertheless, IRPC’s operational overlap and integration with the PTT group remains limited, given IRPC’s independent and fully-integrated facilities, and therefore support is not factored into the rating.
The company’s credit profile is tempered by its high vulnerability to oil prices, gross refinery margins (GRM), and fluctuations in petrochemical prices, which have a large impact on earnings and cash flow generation. The ratings also take into account the revised investment plan, and the company’s reliance on exports given the country’s excess capacity in polymers. IRPC is also exposed to supply risk on oil refining, as Thailand is highly dependent on foreign oil supplies.
Fitch views that higher-than-expected leverage (measured by net adjusted debt to EBITDAR of over 3.0x on a sustained basis), as well as a prolonged or deeper-than-expected industry downturn, could negatively affect IRPC’s ratings. On the other hand, stronger-than-expected cash flow generation and a less aggressive implementation of the expansion plan could result in faster de-leveraging, which could stabilise the Outlook. A possible merger with PTT Aromatics and Refining Public Company Limited could also have a positive impact.
Applicable Criteria available on Fitch’s website at www.fitchratings.com: ‘Corporate Rating Methodology,’ dated November 24, 2009; ‘Credit Rating Methodology for Refiners’ dated November 9, 2007 and ‘Rating Chemical Company’, dated May 13, 2010.
Fitch has made major improvements to its credit research on EMEA and AsiaPac corporates. To view these improvements, visit our 'Clear Thinking' web page at http://clearthinking.fitchratings.co.uk/Index.html
Contacts: Lertchai Kochareonrattanakul, Ekapan Prompraphant, Vincent Milton, Bangkok, +662 655 4755.