PTT’s gains from rising oil prices to be offset by support of subsidiaries, says ratings firm
The spike in crude oil prices driven by the Russia-Ukraine war will boost earnings for PTT Plc this year, though this uplift may be offset by squeezed margins in PTT’s downstream subsidiaries, a ratings company said on Tuesday.
“In our view, PTT’s earnings boost may not be proportionate to the increase in crude oil prices and natural gas prices. This is because a high oil price environment will likely erode margins in refining, petrochemical and power businesses," S&P Global Ratings said.
"Plus, petrochemical capacity additions, particularly in olefins and polyolefins chains, should result in an unwinding of petrochemical spreads over the next one to three years. About 30 per cent of PTT's earnings before interest, tax, depreciation, and amortisation [EBITDA] comes from downstream operations."
S&P Global Ratings expects PTT to remain comfortably within the rating tolerance of “BBB” stand-alone credit profile.
Under revised oil price assumptions of US$85 per barrel in 2022, PTT is likely to maintain an ample cash balance and debt-to-EBITDA ratio at 2 to 2.2 times in 2022-2023, it added.
"Our projections include annual EBITDA of between 389 billion and 410 billion baht in 2022 and 2023, largely backed by earnings from its upstream subsidiary, PTT Exploration and Production [PTTEP]," the ratings firm said, that PTT recorded S&P-adjusted EBITDA of 397.8 billion baht as of December 31, 2021.
Despite robust earnings forecast on PTT, S&P Global Ratings expects the group leverage to remain largely unchanged from the 2021 level. This reflects the group's recent increased investment profile, which had included PTTEP's acquisition of Block 61 and PTT Global Chemical (GC)'s acquisition of Allnex Holding GmbH in 2021.
"At the same time, capital expenditure remains sizable in the group's refining subsidiary, Thai Oil, because of a greenfield development in its Clean Fuel Project," S&P Global Ratings said.
"Amid a period of elevated crude prices, we expect PTT to extend more support to its downstream subsidiaries, Thai Oil and GC, in addition to the support already granted to unrated IRPC. The support will be provided in the form of an extension of payment terms for crude oil supplied by PTT to its downstream subsidiaries."
Concurrently, PTT plans to securitise related accounts receivable to facilitate early cash receipt and offset the cash flow impact of the extended payment terms.
S&P Global Ratings believes the Thai national oil company can absorb some inventory losses at its downstream subsidiaries if crude oil prices correct sharply. PTT reported 361.6 billion baht in cash and cash equivalents as of December 31 last year.
The Finance Ministry owns 51.1 per cent of PTT, and S&P Global Ratings views it as having a critical role in maintaining the country's energy supplies and a strong link with the government
"We do not expect any negative government intervention, such as imposing additional cash call from the group beyond its dividend payout ratio, which has historically been 45-50 per cent," it said.
