Bangkok--22 Jul--Fitch Ratings
Fitch Ratings has revised the Outlook on PTT Public Company Limited (PTT) and PTT Exploration and Production Public Company Limited (PTTEP) to Positive from Stable. The agency has affirmed the two companies' Issuer Default Ratings and PTTEP's senior unsecured rating at 'BBB+'. The rating actions follow the revision of Outlook on Thailand's 'BBB+' sovereign rating to Positive from Stable on 19 July 2019.
The Outlook on the National Rating of PTT is not affected as National Ratings are a relative measure of creditworthiness between the sovereign and other issuers within Thailand.
KEY RATING DRIVERS
PTT Equalised to Sovereign: Under Fitch's Government-Related Entities (GRE) Rating Criteria, PTT's ratings are equalised with those of the sovereign. This is due to our assessment of a strong likelihood of government support for PTT, if needed. PTT's Standalone Credit Profile (SCP) is also 'bbb+'.
Strong Linkages with Sovereign: Fitch regards PTT's status, ownership and control by the sovereign as 'Moderate'. The state directly owns 51% of PTT and appoints its board, but the level of the state's involvement in PTT's strategic, operational and financing activities is moderate. We see the support track record and expectations of state support as 'Strong'. There has been no explicit tangible financial support from the state due to PTT's robust financial position, but we believe support would be forthcoming if needed in light of PTT's strategic role in Thailand's oil and gas sectors.
We believe the socio-political implications of a default by PTT are 'Strong', because PTT is the sole gas supplier to state-owned electricity generators, and natural gas fuels about 60% of Thailand's electricity generation. A financial default would significantly affect gas availability in Thailand, which could cut power generation and reduce the country's energy security. We also see the financial implications of a default as 'Strong', as PTT is one of the key bond issuers from Thailand and a default could limit the availability and cost of domestic or foreign financing options for the state and other GREs.
PTTEP Equalised to PTT: PTTEP's rating is equalised with that of its parent, PTT, reflecting our assessment of the strong operating and strategic linkages between the two companies as per Fitch's Parent and Subsidiary Rating Linkage criteria. The assessment is driven by the integrated operations of the two companies. PTTEP is 65% owned by PTT and accounted for 36% of PTT's consolidated EBITDA in 2018. PTTEP is crucial to the group's upstream integration. PTTEP sells more than 80% of its output to PTT and derives nearly 90% of its revenue from PTT. PTTEP's Standalone Credit Profile is assessed at 'bbb'.
PTTEP also plays an important role by supporting its parent's strategic role in Thailand's oil and gas sector and improving the energy security of the country. PTT has representation on PTTEP's board and is involved in the appointment of some key management personnel. It also plays an active role in supporting PTTEP in many strategic decisions, including large acquisitions.
Please see the following rating action commentaries, available on www.fitchratings.com, for the full rating rationales for the two issuers:
Fitch Affirms Thailand's PTT at 'BBB+'; Outlook stable, dated 3 May 2019
Fitch Assigns PTT Exploration First-Time IDR of 'BBB+/Stable, dated 28 May 2019.