PTT's rating affirmed: S&P

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"We affirmed the rating to reflect PTT's ability to generate solid cash flows," said Standard & Poor's credit analyst Andrew Wong. "PTT's position as the only integrated energy company in Thailand, the company's enhanced scale, and the solid demand prospects for energy in the country will support cash flows."

 

 

Cash flow stability is expected to be an important rating factor given PTT's heavy capital expenditure requirements over the next two years. These investments are mainly for the company's upstream and gas businesses. Yet, S&P expects PTT to generate negative free operating cash flows in 2012 and 2013. Cash flow adequacy ratios may moderate in 2012-2014 due to the company's peak capital expenditure requirements of Bt233.9 billion during this time. Nevertheless, these ratios will remain adequate for PTT's "intermediate" financial risk profile. The company also maintains some flexibility in its investment plans.

 

The rating on PTT reflects the company's 'bbb' stand-alone credit profile (SACP) and an extremely high likelihood of extraordinary support from the government of Thailand (foreign currency BBB+/Stable/A-2; local currency A-/Stable/A-2; axAA/axA-1) in the event of financial distress.

 

"We view PTT's business risk profile as "satisfactory", as our criteria define the term," said Wong. The PTT group dominates all major segments of oil and gas exploration and production; gas transmission, distribution, and separation; and petrochemical and refining in Thailand. PTT's profitability is lower than that of other integrated national energy companies, reflecting the company's dominant marketing and trading business and the transmission-like nature of its gas business.

 

 

In the statement, the rating company noted that a rating upgrade is possible if the sovereign credit rating is raised and the company maintains or improves its SACP. A downgrade is also possible if  (1) the sovereign credit rating on Thailand is lowered; (2) the government's shareholding in PTT held by the Ministry of Finance falls below 50 per cent; (3) the government's energy policy shifts significantly, including liberalisation of the gas industry, thus eroding PTT's market share; or (4) PTT's SACP weakens by more than four notches.