Falling oil prices to hurt energy, banking stocks
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Falling oil prices will squeeze the profitability of corporates in the energy sector while rising leverage in the Thai private sector will constrain the performance of banks, said Fitch Ratings (Thailand).
At theinaugural semi-annual investor briefing in Bangkok today, Lertchai Kochareonrattanakul, Fitch's senior director of corporates, said that the rating outlooks of most large Thai corporates remain stable, supported by strong business positions and relatively solid credit metrics.
Though, lower oil prices will weaken PTT's operating cash flows in 2015, resulting in higher leverage. However, Fitch believes that PTT has flexibility to reduce its capital expenditure and manage its leverage to be consistent with the current rating. In addition, if PTT’s standalone ratings fall below Thailand’s sovereign rating, its ratings would benefit from a one notch uplift to reflect the implicit support of the state.
Among other key sectors, mobile phone operators are likely to face slow revenue growth and high marketing expenses in 2015, but those factors will be offset by lower regulatory costs. Although capital expenditure for the roll-outs of 3G networks will remain high, the financial positions of mobile phone operators should prove resilient, supported by low leverage ratios and strong operating cashflows.
It was concluded that the ratings of major Thai corporates are likely to remain stable despite the heightened risk, backed by their strong business profiles and their ability to adjust investment costs. For the bank sector, while provisioning costs may increase, Thai banks’ ratings should also prove resilient, supported by their sizeable capital buffers and reserves.
The conference was attended by over 50 executives and officials from the regulatory, investor, financial and corporate sectors.
In a report published today titled "Asia-Pacific's Oil Windfall--Save Or Spend And What It Means", Standard & Poor's Ratings Services noted that the recent decline of more than 40 per cent in oil prices presents a windfall to Asia-Pacific.
Energy imports vary in importance across the region's economies. Singapore stands out with an oil trade deficit of 13 per cent of gross domestic product (GDP) but larger economies such as Korea and India run sizable oil trade deficits of about 5 per cent of their GDP. Thailand runs the second-largest deficit in the region at 7.6 per cent of its GDP. At the other end of the spectrum are Malaysia and Vietnam, which run a fractional oil trade surplus and deficit, respectively. In terms of value, China and Japan dominate, not surprisingly, with annual oil import bills approaching US$300 billion.
The rating agency noted that the lower oil prices would save the energy import value in these countries. Yet, whether the windfall will translate into higher growth depends on whether it is largely spent or saved.
"Spending the windfall can raise GDP in key economies while saving it will provide little or no stimulus to growth," said Paul Gruenwald, Standard &
Poor's Asia-Pacific chief economist.
If the oil price windfall is largely spent, the effects on GDP are highest in the Philippines, Hong Kong, China, and Thailand. In this group of economies, a
one-year drop in Brent crude to US$65 per barrel could raise output by one-third of 1 per cent or more. India and Korea will see GDP rise by around one-fifth of a percent. These economies tend to have relatively larger oil trade deficits, suggesting higher oil dependence.
The effects on GDP for the rest of the region to be broadly neutral, it said.
