Bangkok--25 Aug--Moody's Investors
Moody's Investors Service has changed to stable from negative the outlook for PTT Chemical Public Company Ltd's (PTT Chemical) Baa3 issuer rating and senior unsecured rating.
"The outlook revision reflects Moody's expectation that PTT Chemical will maintain a steady financial profile over the next 12-18 months compared to 2009," says Renee Lam, a Moody's Vice President and Senior Analyst.
"While new olefins production capacity in Asia and Middle East is likely to continue pressuring product spreads and therefore squeeze profitability, the company's leverage and cash flow coverage metrics should be maintained by the decline in its capital expenditure requirements," adds Lam.
Moody's further notes that PTT Chemical's product diversity has been enhanced with the completion of various major projects, including a 1.0 million tpa ethane cracker plant and polyethylene plants with a combined capacity of 1,000,000 tpa.
But these new capacities have yet to start commercial operation as various environmental issues need to be resolved due to the Map Ta Phut case.
Accordingly, assuming further delays for another 12-15 months in a downside scenario, Moody's expects PTT Chemical's financial profile to remain appropriate for its standalone Ba1 rating, with adjusted debt to EBITDA staying below 3x.
At the same time, the standalone Ba1 rating continues to reflect PTT Chemical's leading market position, competitive cost structure, secured access to feedstock supply, long-term sales contracts, and moderate financial policies.
The final Baa3 rating incorporates a one-notch uplift to reflect the high likelihood of its 49.3% parent PTT Public Company Limited (PTT, ratedA3/negative) providing credit support in a distress situation.
Upward rating pressure would emerge if PTT Chemical further strengthens its credit metrics, with adjusted debt/EBITDA consistently at 2.5x or below, and which may be the result of 1) demand rising to absorb new capacities and hence improving product spreads, or 2) the company's new production capacities delivering meaningful cash flow contributions.
The rating could experience downward pressure if adjusted debt to EBITDA exceeds 3x consistently, which could be a result of 1) PTT Chemical facing major disappointments in commercially operating its expansion projects; 2) further material downturns in the petrochemical industry beyond current expectations; or 3) the company embarking on any aggressively funded new investment projects. Any reduction in the support level from PTT would also be negative for the rating.
The last rating action with respect to PTT Chemical was taken on May 13, 2009, when the ratings outlook was changed to negative from stable.
The principal methodology used in rating PTT Chemical was Moody's Global Chemical Industry Rating Methodology, published in December 2009 and available on 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 this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.
PTT Chemical is the largest petrochemical company in Thailand. At end-2009, it had an olefins production capacity of 1.86 million tons per annum (tpa) of ethylene/propylene, 500,000 tpa of polyethylene and 395,000 tpa of MEG. The company is a major 49.3%-owned associate of PTT.
Hong Kong
Renee Lam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Philipp L. Lotter
Senior Vice President
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
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