PTTEP's move could test limits of its ratings headroom: Moody's

 Like what Standard & Poor's announced a day earlier, Moody's said PTTEP's rating would not be affected by the decision for now given that the proposal is still in the preliminary phase.
 However, should the company's decision to pursue Cove materialise, its ratings could come under pressure, depending on its chosen method of funding, Moody's said in a statement released on Tuesday.
 PTTEP is now rated "Baa1" with stable outlook.
 According to the rating company, while the proposed acquisition is in line with PTTEP's strategy to expand its reserve base and increase its long-term production, the deal would be the company's second major acquisition in less than 18 months, which in conjunction with its large ongoing capex, will add considerable pressure
to its rating. At end-2011, its total debts accounted for 10 times of proved developed reserve metrics, which was already weak for its current rating, and already outside Moody's threshold of 8 times. Moreover, the rating agency also expected the ratio to rise this year, based on the company's capital expenditure programme of US$3.6 billion which already results in negative free cash flow.
 "Moody's will evaluate the impact of the acquisition, if and when the transaction is committed and the financing structure is known," it said.
 The rating agency noted that negative rating pressure would emerge if the total adjusted debt to proved
developed reserve ratio remains above 8 times or if the debt to average daily production exceeds US$19,000, on a
sustained basis.
 It added that as PTTEP contributes 56 per cent of total EBITDA of PTT in 2011, any negative action on PTTEP would negatively impact the parent company's credit profile.
 In its view, PTTEP's ambition to triple oil and gas production output to 900,000 barrels of oil equivalent per day (BOED) by 2020 may require the company to "add equity to its funding mix in support of current ratings".