PTT

 The agency notes that PTT has postponed the issuance of its two tranches of senior unsecured debentures due in October 2015 and November 2018 with a total amount of up to THB20bn to Q112 from December 2011 due to major flooding in Bangkok. Fitch rates the debentures at ‘AAA(tha)’.
 PTT’s ratings reflect its dominance in Thailand’s gas and oil industry, its strategic importance and function as a policy vehicle for domestic energy security and development. PTT is the sole operator in domestic mid-and-downstream gas operations. Natural gas is a major fuel for the country’s electricity generation. PTT is also one of the country’s major exploration and production (E&P) companies, and a leading oil and petrochemicals company.
 Gas and upstream operations are the major contributors to PTT’s operating cash flows and the main drivers of its growth. Fitch expects cash flows from these businesses to continue to grow and remain a large portion of total EBITDA over the next five years. Cash flows from gas interests have proven relatively stable, due to long-term sales agreements with customers with minimum take-or-pay conditions and a cost-plus pricing structure. PTT also benefits from generally less volatile gas prices relative to oil prices.
 Nevertheless, the company’s credit profile is tempered by its vulnerability to fluctuations in commodity prices, significant budgeted capex, sustained negative free cash generation expected in the next two years, exposure to regulatory and political risks, as well as some foreign exchange risk.
 PTT is actively investing in upstream and gas businesses to ensure energy security for the country. The Stable Outlook reflects Fitch’s expectation that PTT can maintain its financial leverage, measured by adjusted net debt/operating EBITDAR, at 2.0x or below, on a sustained basis. However, large debt-funded M&A remains a risk for its standalone credit profile.
 Under its parent/subsidiary methodology, Fitch rates PTT on a bottom-up basis, and would provide a one-notch uplift on its standalone profile to reflect implicit support from the government. However, as Thailand’s ‘A-’ Long-Term Local-Currency IDR is now at the same level as PTT’s standalone Local-Currency IDR, the one notch uplift is irrelevant. PTT's Long-Term Foreign-Currency IDR of ‘BBB’ is capped by Thailand’s, given the state’s majority ownership in the company and that its main operations are concentrated domestically.
 Factors that could adversely affect PTT’s standalone credit profile include regulatory changes, unfavourable changes to gas sales contracts and pipeline tariffs, a sustained deterioration in financial leverage (adjusted net debt/operating EBITDAR in excess of 2.0x on a sustained basis), and large debt-funded acquisitions. Any change to Thailand’s Foreign-Currency IDR would affect PTT’s Foreign-Currency IDR.