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Rating Action:

Moody's affirms PTT's Baa1 ratings; outlook stable

05 Jul 2018

Singapore, July 05, 2018 -- Moody's Investors Service has affirmed PTT Public Company Limited's (PTT) Baa1 issuer and senior unsecured ratings.

At the same time, Moody's has also affirmed PTT's baseline credit assessment (BCA) at baa2.

The outlook on all ratings remain stable.

RATINGS RATIONALE

"The affirmation of PTT's Baa1 ratings reflects its strong credit metrics, solid liquidity profile and healthy cash flow generation, even after taking into account its proposed $4.3 billion debt-funded acquisition of Glow Energy Public Company Limited, a power company based in Thailand," says Rachel Chua, a Moody's Assistant Vice President and Analyst.

Moody's expects PTT's post-acquisition retained cash flow/ adjusted net debt to stay at around 55%-60% over the next two years, which is healthy relative to the quantitative downward rating guidance of 25% for its rating level. Its EBITDA interest coverage will remain strong at 9x-10x.

"We believe this acquisition is in line with PTT's strategy to grow its presence in the Thai power sector such that it more than doubles total power generation capacity to over 5GW. It will also allow the company to leverage on Glow's operational expertise in the sector," adds Chua, who is also Moody's lead analyst for PTT.

Through its 75% effective stake in Global Power Synergy Public Company Limited (GPSC), PTT announced that it has signed a sales purchase agreement with French utility company ENGIE SA (A2 stable) to acquire ENGIE's 69.11% stake in Glow Energy Public Company Limited (Glow) for THB97.6 billion ($2.9 billion). GPSC will also have to make a tender offer for the remaining 30.89% stake held by public shareholders at the same price, bringing the cost of acquiring 100% of Glow to $4.3 billion.

"PTT's Baa1 ratings continues to reflect its baa2 BCA and a one-notch uplift resulting from our expectation of a high likelihood of extraordinary support from the Government of Thailand (Baa1 stable)," says Chua.

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) 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 and declining 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.

PTT has a strong liquidity profile. It had consolidated cash and cash equivalents of THB265 billion ($8.3 billion) and short-term investments of THB160 billion ($5.1 billion) at 31 March 2018 compared with THB77 billion of debt maturing over the next 12 months.

On a stand-alone basis, the company's liquidity remains strong, with cash and short-term investments totaling THB104 billion versus THB22 billion of short-term maturities.

The stable rating outlook is in line with the outlook on Thailand's sovereign rating and reflects our expectation that PTT will maintain a prudent financial profile as it pursues growth.

An upgrade of PTT's Baa1 issuer rating is unlikely given its domestically-focused operations. The Baa1 rating will only be upgraded if Thailand's Baa1 sovereign rating is upgraded.

Near-term upward rating pressure on PTT's 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 position, while (1) expanding its upstream oil and gas business through a combination of organic and inorganic growth resulting in a meaningful increase in its reserves to over seven years; 2) strengthening its cash flows 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 Baa1 issuer rating will be downgraded if (1) Thailand's sovereign rating is lowered; (2) the company's BCA deteriorates below baa3; or (3) 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 rating.

We would lower PTT's BCA to baa3 if there is a significant deterioration in oil prices and/or refining margins such that it weakens operating cash flows or if 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 of its BCA include adjusted retained cash flow (RCF)/net debt below 25%, adjusted debt/capitalization exceeding 45% and adjusted EBITDA/interest below 5x. A lowering of the BCA to baa3 will not automatically result in a downgrade of PTT's issuer rating.

PTT is an integrated oil, gas and petrochemical company based in Thailand. Its main operations include 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 out of 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 the 12 months ended 31 March 2018, the company reported consolidated revenue of THB2.0 trillion ($64 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 12.4%.

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.

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.

Rachel Chua
Asst Vice President - Analyst
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

No Related Data.
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