PTT Global Chemical
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PTT Global 'BBB' Rating Affirmed On Sustained Parent Support, Steady Financial Performance; Outlook Stable
SINGAPORE (Standard & Poor's) May 25, 2015--Standard & Poor's Ratings Services
said today that it had affirmed its 'BBB' long-term corporate credit rating on
PTT Global Chemical Public Co. Ltd. (PTT Global). The outlook is stable. At
the same time, we affirmed our 'axA' long-term ASEAN regional scale rating on
the Thailand-based refinery and petrochemical company. We also affirmed our
'BBB' long-term issue ratings on the company's US$300 million senior unsecured
notes due 2015 and its US$1 billion senior unsecured notes due 2022.
"We affirmed the ratings because we believe PTT Global will remain highly
strategic to PTT Public Co. Ltd. [PTT] over the next 24 months at least," said
Standard & Poor's credit analyst Xavier Jean. "We also see an extremely high
likelihood that the Thai government will extend indirect support via PTT to
the PTT group entities. PTT has a strong domestic position in the oil and gas
business and a high degree of integration."
We believe it is highly unlikely that PTT will divest its controlling 48.89%
stake in PTT Global over the next two years at least. In our view, PTT has a
strong commitment to support PTT Global and an incentive to provide
exceptional support to the company if necessary. Our view is based on PTT
Global's high level of product, marketing, and operational integration with
the wider group. PTT Global is the flagship petrochemical producer of the PTT
group, through which it obtains a large proportion of its feedstock. PTT
Global is also a major buyer of gas from PTT's gas separation plants, and the
parent accounted for close to 35% of PTT Global's sales in 2014. Both
companies also have a strong name association.
PTT Global's stand-alone credit profile (SACP) of 'bbb-' reflects the
company's low-cost olefin and polyolefin operations. In addition, the company
has a strong competitive advantage, a high and sustainable market share in a
variety of petrochemical products in Thailand, and established access to end
customers. The SACP also reflects PTT Global's fairly diverse product mix,
which includes refined petroleum products and petrochemical products, and a
track record of high utilization rates. These factors underpin the company's
"satisfactory" business risk profile.
"We forecast PTT Global's positive free operating cash flows to average about
Thai baht [THB] 10 billion annually over the next three years, despite its
sustained capital spending," said Mr. Jean. Those cash flows, along with a
sizable cash balance and short-term investments of about THB60 billion as of
March 31, 2015, will be sufficient to pay dividends and repay amortizing debt
through 2017. That, in turn, should support solid cash flow adequacy through
2017. We forecast PTT Global's debt-to-EBITDA ratio, including our surplus
cash adjustment, to be 1.9x-2.2x in 2015-2017. We project the company's ratio
of funds from operations (FFO) to debt to average 40% over the same period.
Both ratios are well within the "intermediate" financial risk profile
category.
The stable outlook on PTT Global reflects the outlook on the company's parent
PTT (BBB+/Stable/--; axA+/--) because the rating on PTT Global factors in
strong support from, and linkage with, the parent. The stable outlook on PTT
Global also reflects our expectation that the company's debt-to-EBITDA ratio
will remain at 1.9x-2.2x over the next two years, a range largely in line with
an intermediate financial risk profile.
We could lower the rating on PTT Global if any of the following occurs:
•
We downgrade PTT. This could be due to negative changes in: (1) the
sovereign rating on Thailand (foreign currency BBB+/Stable/A-2; local
currency A-/Stable/A-2; axAA/axA-1); (2) our opinion of the likelihood of
extraordinary government support; and (3) our assessment of PTT's SACP.
•
PTT's shareholding in PTT Global reduces significantly or the parent's
business integration shifts considerably. This could affect feedstock
availability, lead to termination of netback pricing arrangements, and
weaken the profitability of PTT Global's olefin and polyolefin
operations.
We could revise PTT Global's SACP downwards if the company's debt-to-EBITDA
ratio increases above 3.0x on a sustained basis. However, a deterioration in
the SACP is unlikely to lead to a lower rating as long as we assess PTT Global
to be a highly strategic subsidiary of PTT.
We could raise the rating on PTT Global if:
•
We raise the rating on PTT while continuing to assess PTT Global to be a
highly strategic subsidiary.
•
We revise PTT Global's group status to "core." This could happen if PTT
substantially increases its shareholding above 50% and PTT Global
constitutes a significant portion of the consolidated group.
We could revise PTT Global's SACP upwards if the company's debt-to-EBITDA
ratio falls below 1.5x and remains at that level over a pricing cycle.
However, such improvement is unlikely to translate into a higher rating as
long as we assess PTT Global to be a highly strategic subsidiary of PTT.
