Fitch validates PTTGC’s standing at AA

Fitch Ratings Thailand has affirmed petrochemical and refining company PTT Global Chemical Plc’s (PTTGC) long-term rating and senior unsecured national rating at AA, and its short-term rating at F1+.

The rating reflects PTTGC’s continued strong business profile as the largest fully integrated petrochemical and refining company in Thailand. The current low financial leverage provides headroom for the company to undertake additional investment, said the rating agency.

PTTGC’s sales volume is likely to increase in 2018-21, driven by the new petrochemical capacity. The company started operation of its 434,000 tonnes per annum (tpa) liner l ow-density polyethylene plant and hexane-1 plant (mLLDPE project) in the first quarter of this year, and expects commercial operation of its 200,000 tpa methyl ester plant to start next half.

The company’s recent projects, including a propylene oxide and polyol project and an olefins reconfiguration project, will also help drive the company’s growth in 2020-21.

PTTGC’s funds from operations (FFO) adjusted net leverage improved to 0.8 times in 2017 from 1.2 times in the year before, mainly because of higher production and improved operating margins. Fitch expects PTTGC’s operating cash flow to cover the majority of its committed capital expenditure and dividend payments in 2018-19. As a result, PTTGC’s FFO-adjusted net leverage should remain low in 2018-19.

But PTTGC has US$2.6 billion (85.7 billion baht) of committed spending over the next three years and a significant discretionary investment plan under review. Fitch will review the impact of the investment on the company’s credit profile once PTTGC finalises the investment amount and funding structure.

PTTGC benefits from its cost competitive feedstocks, as the majority of its olefins feedstock is gas-based and available domestically, and its favourable gas supply agreement with its parent, PTT Plc, which reduces margin volatility when market conditions fluctuate.

PTTGC’s credit profile is tempered by the inherent cyclical nature of the petrochemical and refining sector, said Fitch. The volatility of product-to-feed margins, refining margins, feedstocks prices, oil prices and working-capital requirements could affect PTTGC’s earnings and cashflow generation significantly. PTTGC is also exposed to supply concentration risk as the majority of its feedstock supply is secured from its major shareholder, PTT.

PTTGC’s long-term national rating incorporates a one-notch uplift from its stand-alone credit profile of AA-, reflecting its moderate links with PTT. PTTGC is PTT’s largest petrochemical subsidiary and the flagship in expanding its petrochemical business, which was demonstrated by PTT injecting petrochemical assets into PTTGC in 2017.