Singapore, March 08, 2018 -- Moody's Investors Service has affirmed Thai Oil Public Company Limited's
Baa1 senior unsecured debt ratings.
Moody's has also affirmed the provisional (P)Baa1 senior unsecured
rating on Thai Oil's medium term note (MTN) programme.
The company has expanded the programme to include Thaioil Treasury Center
Company Limited (Thaioil TC) -- a wholly-owned subsidiary
of Thai Oil -- as a co-issuer, and has also
increased its size to $1.3 billion from $1 billion.
At the same time, Moody's has assigned a provisional (P)Baa1
senior unsecured rating to the MTN programme with Thaioil TC as the issuer.
Thai Oil provides an irrevocable and unconditional guarantee to notes
issued by Thaioil TC under the programme.
Moody's has also assigned Baa1 ratings to Thaioil TC's two proposed
senior unsecured USD notes to be drawn down from the MTN programme.
The outlook on all ratings is stable.
The two proposed senior unsecured notes are being offered in conjunction
with a tender offer for the $500 million senior unsecured notes
due 2023 and $500 million senior unsecured notes due 2043 issued
by Thai Oil in 2013. Participating holders will receive Thaioil
TC's notes in exchange for Thai Oil notes with no change to the
terms and conditions or maturity.
A portion of Thai Oil notes may remain outstanding if not all holders
choose to take up the offer. Effectively, Moody's expects
Thai Oil's total amount of USD senior unsecured notes will remain
at $1 billion following this proposed transaction.
And following the recent enactment of a Royal Decree under the Thai Revenue
Code, Moody's expects that Thaioil TC as the issuing entity will
enjoy withholding tax exemptions on distribution payments on its new notes,
benefiting Thai Oil as a group.
RATINGS RATIONALE
"The ratings affirmation reflects our expectations that Thai Oil's
credit metrics will remain strong over the next 12-24 months as
it continues to generate healthy operating cash flows of THB32-34
billion per annum in a relatively supportive refining margin environment,"
says Rachel Chua, a Moody's Assistant Vice President and Analyst.
Over the next two years, Moody's believes Thai Oil's
retained cash flow (RCF)/adjusted debt will be around 28%-30%
and interest coverage will be at 9x-10x.
Thai Oil's Baa1 ratings also take into account the company's
position as Thailand's largest and most complex refiner, its
stable operating profile, as well as the long-term feedstock-supply
and product off-take agreements with its largest shareholder,
PTT Public Company Limited (PTT, Baa1 stable).
The company has a solid liquidity profile. As of 31 December 2017,
the company had cash of THB15.6 billion and short-term investments
of THB52.3 billion which largely comprised fixed bank deposits.
In comparison, the company had total reported debt of THB66.5
billion, of which THB2.6 billion come due within the next
12 months.
While Thai Oil's committed capex is relatively low at $395
million in 2018-19, the company is studying a major investment
project which will enhance its capability to upgrade lower value products
and its ability to process heavier crude. It expects to achieve
its final investment decision on the project in the first half of 2018.
Moody's believes there is flexibility under the rating to accommodate
a largely cash-funded capital expansion of around $3.5
billion, assuming that the investment cost will be spent over 4-5
years, during which Thai Oil continues to generate healthy operating
cash flows without disruptions.
At the same time, Moody's notes that the company will be exposed
to high execution risks during construction because operational delays
and budget overruns are common in such large-scale investments.
"The Baa1 ratings incorporate a one-notch uplift which reflects
our expectations that PTT will provide credit support in the event of
distress. Thai Oil remains strategically important to PTT's
downstream oil business, and there is a close business integration
between the two companies," adds Chua, who is also Moody's
Lead Analyst for Thai Oil.
At the same time, the ratings are constrained by Thai Oil's
modest operating scale relative to its global peers in the industry,
the single-site concentrated nature of its operations, and
the volatility in its earnings as a result of its exposure to the inherently
cyclical nature of the refining and petrochemical markets.
The outlook is stable, reflecting Moody's expectation that
Thai Oil will maintain its operational competitiveness, conservative
investment strategy, and prudent financial profile.
A rating upgrade is unlikely, given Thai Oil's relatively
small scale and low business diversity compared with similarly rated global
peers.
Nonetheless, upward rating pressure could emerge if the company
(1) increases its refining capacity and complexity; (2) broadens
the scale and diversity of its downstream refining and petrochemical products;
and (3) reduces its single-site concentration risk while maintaining
retained cash flow (RCF)/adjusted debt above 35%-40%
on a sustained basis.
The rating would experience downward rating pressure should the company's
balance sheet be used for (1) aggressive dividend payouts, or (2)
aggressive capital investments or acquisitions that materially change
its business mix. We will also consider a rating downgrade if there
is a sustained deterioration in the company's oil-refining fundamentals,
such that its RCF/adjusted debt falls below 20%-25%.
A significant reduction in PTT's ownership of Thai Oil and/or a material
change in the supply and off-take agreements between the two companies
would be negative for the rating. Negative pressure on PTT's
rating will also result in negative pressure on Thai Oil's ratings.
The principal methodology used in these ratings was Refining and Marketing
Industry published in November 2016. Please see the Rating Methodologies
page on www.moodys.com for a copy of this methodology.
Thai Oil Public Company Limited is a leading refiner and supplier of petroleum
products in Thailand. The company operates the largest complex
refinery in the country with a nameplate capacity of 275,000 barrels
per day, or around 25% of the country's domestic crude
refining capacity. Thai Oil's other business segments include
petrochemical (aromatics), lube base oil, power generation
and marine transportation.
Thai Oil is 49.1% owned by PTT Public Company Ltd which
is in turn 51.1% owned by the Government of Thailand (Baa1
stable).
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
