Singapore, July 26, 2019 -- Moody's Investors Service has changed PTT Public Company Limited's (PTT)
ratings outlook to positive from stable.
At the same time, Moody's has affirmed PTT's (1) Baa1
issuer and senior unsecured ratings; and (2) PTT's baseline
credit assessment (BCA) at baa2.
Today's actions follow the affirmation of Thailand's Baa1
sovereign rating and the change in its outlook to positive from stable
on 25 July 2019. For additional details on the rationale for the
sovereign rating action, please refer to the press release [https://www.moodys.com/research/Moodys-changes-Thailands-rating-outlook-to-positive-from-stable-affirms--PR_403204].
RATINGS RATIONALE
"The change in PTT's ratings outlook to positive is in line
with the rating action on Thailand's sovereign rating, and
reflects the company's strategically important role as Thailand's
national integrated oil and gas company," says Vikas Halan,
a Moody's Senior Vice President.
PTT's Baa1 ratings incorporate Moody's expectation of a high
likelihood of extraordinary support from the Government of Thailand (Baa1
positive) in a distressed situation, and a high level of dependence
between the government and PTT, a situation which results in a one-notch
uplift to the company's ratings.
The change in PTT's ratings outlook to positive from stable reflects
Moody's view that an additional notch of support could be incorporated
into PTT's ratings, if Moody's upgrades the sovereign
rating to A3.
PTT's ratings also reflect its standalone credit quality,
as captured in its baa2 BCA.
"The affirmation of PTT's Baa1 ratings reflects our expectation
that the company's credit metrics will remain supportive of its
baa2 BCA, despite a steep increase in its capital spending over
the next two years," adds Vikas, who is also Moody's
Lead Analyst for PTT.
Moody's expects that PTT's adjusted retained cash flow/net
debt will remain healthy at 42%-48% over the next
12-18 months, against its downgrade threshold of 25%.
Moody's expectation takes into account higher capital spending at
PTT, averaging around $8-$9 billion per annum
during 2019-20 compared to an average of $3.5 billion
per annum during the recent three years.
The increase in capital spending will address PTT's reserve replacement
needs, develop its downstream refining and petrochemical businesses,
expand its midstream projects and boost its power and renewables business.
The baa2 BCA reflects the company's (1) strategically important position
as Thailand's national integrated oil and gas company, and sole
operator in gas transmission and distribution; (2) significant upstream
production and control over around 60% of Thailand's total refining
capacity; (3) track record of strong and resilient credit metrics
through periods of sustained low oil prices, given its integrated
business model; and (4) strong liquidity profile, with a large
cash balance.
At the same time, PTT's BCA remains constrained by its low hydrocarbon
reserves, which translate into higher capital investment and acquisition
risk, execution risks associated with its expansion plans in the
downstream segments, and less than majority ownership in many of
its key operating companies. The BCA also reflects PTT's inherent
exposure to the cyclical nature of oil prices and refining/petrochemical
margins.
In terms of environmental, social and governance factors,
the ratings also consider the following:
1) As an integrated oil and gas company, PTT has material exposure
to carbon transition risk. The global efforts to transition to
low-carbon energy will gradually lower demand for petroleum products
in the coming decades. This risk for PTT is partly mitigated by
Thailand's significant dependence on imports of oil and gas,
and the company's production mix, which constitutes over 70%
natural gas.
PTT also has a strategy in place to reduce its carbon footprint and increase
its revenue from clean and green businesses.
2) Thailand's aging population will constrain the growth in consumption
of petroleum products over the next decade. Nevertheless,
PTT's presence across the oil and gas value chain and the company's
business strategy will partly mitigate this risk.
3) PTT's close linkage to its largest shareholder, the Government
of Thailand, which provides significant oversight on the company's
strategic planning. PTT Group has planned large capital spending
over the next five years. Some of these projects are in line with
the government's objective of ensuring energy security for the country,
and are supportive of company's long-term goals. Such
high capital spending levels have been incorporated in Moody's assessment
of company's credit metrics.
The positive ratings outlook is in line with the outlook on Thailand's
sovereign rating and reflects Moody's expectation that PTT will
maintain a prudent financial profile as it pursues growth.
Moody's will upgrade PTT's issuer rating if (1) Moody's upgrades
Thailand's Baa1 sovereign rating; (2) PTT's BCA is at least
maintained at the current baa2 level; and (3) there is no change
in the support assessment that Moody's has incorporated in PTT's
ratings.
Near-term upward rating pressure on PTT's baa2 BCA is limited,
given its low and declining hydrocarbon reserves, and large planned
expansion projects.
Nonetheless, PTT's BCA can improve to baa1, if the company
maintains its current credit profile and liquidity while (1) expanding
its upstream oil and gas business through a combination of organic and
inorganic growth, resulting in a significant increase in its reserves
to over seven years; (2) strengthening its cash flow from its stable
natural gas business segment; or (3) growing its other downstream
refining and petrochemical segments.
An improvement in PTT's BCA will not automatically result in an
upgrade of its issuer rating.
PTT's ratings outlook could return to stable if the outlook for
Thailand's sovereign rating returns to stable.
PTT's issuer rating could experience downward pressure if:
(1) the company's BCA deteriorates below baa3; or (2) government
ownership is reduced to below 51%, or government control
is reduced by some other means, which would require a reassessment
of the level of support incorporated into its ratings.
Moody's would downgrade PTT's BCA to baa3 if (1) there is a significant
deterioration in oil prices or refining margins such that it weakens operating
cash flow, or (2) its oil and gas reserves continue to decline to
below four years. Negative pressure on the BCA could also develop
if the company undertakes large debt-funded acquisitions,
resulting in weaker credit metrics and higher execution risk.
Credit metrics indicative of a deterioration in PTT's BCA include adjusted
retained cash flow/net debt below 25%, adjusted debt/capitalization
exceeding 45% and adjusted EBITDA/interest below 5.0x.
A downgrade of the BCA to baa3 will not automatically result in a downgrade
of PTT's issuer rating.
The methodologies used in these ratings were Global Integrated Oil &
Gas Industry published in October 2016, and Government-Related
Issuers published in June 2018. Please see the Rating Methodologies
page on www.moodys.com for a copy of these methodologies.
PTT Public Company Limited (PTT) is an integrated oil, gas and petrochemical
company based in Thailand. Its main operations include the transmission
and distribution of natural gas, and upstream exploration and production
through its 65%-owned subsidiary, PTT Exploration
& Production Public Company Limited (Baa1 stable).
PTT holds interests in three of the six oil refineries in Thailand,
which, together with its six gas separation plants, support
the company's petrochemical business. The company is also directly
engaged in oil marketing and international trading.
In 2018, PTT reported consolidated revenue of THB2.3 trillion
($69 billion).
The company's largest shareholder is the Thai Ministry of Finance,
which owns 51.1% of its total share capital, while
the government-invested Vayupak Mutual Funds owns a further 12.2%.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Vikas Halan
Senior Vice President
Corporate Finance Group
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Laura Acres
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Singapore Pte. Ltd.
50 Raffles Place #23-06
Singapore Land Tower
Singapore 48623
Singapore
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
