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Rating Action:

Moody's assigns Baa1 to PTT's proposed senior unsecured notes

20 Sep 2019

Singapore, September 20, 2019 -- Moody's Investors Service ("Moody's") has assigned Baa1 ratings to the two backed senior unsecured notes (the PTT TCC new notes) to be issued by PTT Treasury Center Company Limited (PTT TCC), a wholly-owned subsidiary of PTT Public Company Limited (PTT, Baa1 positive). The notes will be fully, unconditionally and irrevocably guaranteed by PTT on an unsubordinated basis. The guarantee will rank pari passu to the unsecured and unsubordinated obligations of PTT.

The outlook on the ratings is positive.

The two notes are being offered in conjunction with a tender offer for the $298.3 million outstanding notes issued in 2005, and the $570.6 million outstanding notes issued in 2012 by PTT (the PTT notes). Participating holders will receive PTT TCC new notes in exchange for PTT notes. A portion of the PTT notes may remain outstanding if not all holders take up the offer.

Following the proposed transaction, Moody's expects that (1) PTT's consolidated amount of notes will remain largely unchanged; and (2) PTT TCC as the issuing entity will benefit from withholding tax exemptions on interest payments for the new notes under Thailand's International Business Centers regime.

RATINGS RATIONALE

"PTT's Baa1 ratings reflects its strategic importance as Thailand's national integrated oil and gas company, and incorporate a one-notch uplift resulting from our expectation of a high likelihood of extraordinary support from the Government of Thailand (Baa1 positive)," says Vikas Halan, a Moody's Senior Vice President.

"We expect PTT's credit metrics will remain supportive of its baseline credit assessment (BCA) of baa2, despite a likely steep increase in 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, compared to the downgrade threshold of 25%. Moody's expectation takes into account the planned increase in capital spending at PTT, averaging around $8-$9 billion per annum during 2019-20 compared to an average of $3.5 billion per annum over the past 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 the country's sole operator in the gas transmission and distribution sector; (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 (1) its low hydrocarbon reserves, which translate into higher capital investments and acquisition risk; (2) the execution risks associated with its expansion plans in the downstream segments; and (3) 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 (ESG) 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 growth in the 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 is closely linked 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 the 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.

Moody's will upgrade PTT's issuer rating if (1) Thailand's Baa1 sovereign rating is upgraded; (2) its 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.

An upgrade of PTT's baa2 BCA is unlikely in the near term, given its low and declining hydrocarbon reserves, and large planned expansion projects.

Nonetheless, Moody's could upgrade PTT's BCA if it 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 be downgraded (1) its 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 decline 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, as well as upstream exploration and production through its 65%-owned subsidiary, PTT Exploration & Production Public Company Limited (Baa1 positive).

PTT'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, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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

No Related Data.
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