Approximately US$600 million of debt securities affected
Hong Kong, February 25, 2011 -- Moody's Investors Service has today affirmed the Baa2 issuer and
senior unsecured ratings on PTT Aromatics & Refining Public Company
Limited (PTTAR), and changed the ratings outlook to stable from
negative.
At the same time, Moody's has placed on review for possible
upgrade the Baa3 issuer and senior unsecured ratings on PTT Chemical Public
Company Limited's (PTTCH).
These actions are taken in response to the planned merger of PTTAR and
PTTCH announced today, and also the expected improvement in operating
performance of both companies.
The merger will be conducted via a share swap. Completion of the
transaction, expected for 3Q 2011, is subject to various approvals,
including the consent of the shareholders and the debt holders.
The current major shareholder of both entities, PTT Public Company
Ltd (Baa1/stable), would remain the single largest shareholder of
the merged entity.
The new entity will assume all the existing debt of PTTAR and PTTCH,
including the rated bonds. In Moody's understanding,
the merger will not trigger any put event or event of default as defined
in the indenture of PTTAR's US$300 million 5.5%
notes due 2012. The noteholders' consent is required for
the entity's planned payment of the shareholders' loan of
about THB6.9 billion.
For PTTCH's US$300 million 5.5% notes due 2015,
the merger will trigger a put event only if it results in a rating downgrade
of the notes to the non-investment grade level.
Should the transaction close in the form proposed, Moody's
expects to assign a Baa2 rating, with a stable outlook, on
the new entity. The Baa2 would capture the entity's standalone
rating of Baa3, plus one notch of uplift based on parent support
from PTT.
"The new entity would benefit from a larger scale as well as enhanced
product flexibility from the amalgamation of PTTAR and PTTCH's previously
separate refining and petrochemical production chains," says
Renee Lam, a Moody's Vice President and Senior Analyst.
It also stands to become the largest diversified petrochemical company
in Thailand, with 280,000 bpd of upstream crude distillation
capacity and one of the most complex refining facilities in Asia,
with over 8 million tons of petrochemical production capacity.
"The related but distinct upstream refining and downstream petrochemical
industry cycles would reduce the volatility in both the earnings and cash
flow that PTTAR and PTTCH now are subject to on a standalone basis,"
adds Lam.
"However, as PTTAR's upstream refined petroleum products
cannot directly feed into PTTCH's primarily gas-based production,
Moody's does not expect significant immediate synergy benefits arising
from the amalgamation."
"Nonetheless, the new entity's financial profile benefits
from the relatively low leverage at PTTCH, the declining capex for
both PTTAR and PTTCH, and the improved refining and petrochemical
margins from their troughs. Projected average debt to EBITDA in
2010-2012 is at 2-2.5x, while average retained
cash flow to debt is at over 30%. These ratios are in line
with the profile of a standalone Baa3 refining and petrochemical company,"
adds Lam.
The expected final Baa2 rating will factor in one notch of uplift based
on Moody's assessment of the credit support that its parent,
PTT, is likely to provide in the event of distress.
Upon completion of the merger, Moody's will assign ratings
on the new entity, and withdraw the ratings on both PTTAR and PTTCH.
The last rating action on PTTAR was taken on February 20, 2009 when
Moody's changed the company's ratings outlook to negative
from stable.
The last rating action on PTTCH was taken on August 25, 2010 when
Moody's changed its ratings outlook to stable from negative.
PTTAR, based in Thailand, is an integrated petrochemicals
and refining company. It owns a complex refinery in Thailand's
Rayong Province with a production capacity of 280,000 barrels per
day. The company is also involved in the production of aromatics
products, including benzene, paraxylene, orthoxylene,
mixed xylenes, and cyclohexane, with an overall production
capacity of 2.1 million tons per annum.
PTT Chemical is the largest petrochemical company in Thailand.
At end-2009, it had an olefin production capacity of 1.86
million tons per annum of ethylene/propylene, 500,000 tpa
of polyethylene and 395,000 tpa of MEG. The company is a
major, 49.3%-owned associate of PTT.
Moody's adopts all necessary measures so that the information it uses
in assigning a credit rating is of sufficient quality and from sources
Moody's considers to be reliable including, when appropriate,
independent third-party sources. However, Moody's
is not an auditor and cannot in every instance independently verify or
validate information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
Hong Kong
Renee Lam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
JOURNALISTS: (852) 3758 -1350
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Hong Kong
Gary Lau
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
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Moody's affirms PTTAR's Baa2; reviews PTTCH's Baa3 for upgrade
