Fitch Revises Outlook on Thailand's PTT and PTTEP to Stable from Positive; Affirms at 'BBB+'

Stocks and Financial Services Press Releases Friday March 20, 2020 09:10
Bangkok--20 Mar--Fitch Ratings
Fitch Ratings has revised the Outlooks on
PTT Public Company Limited (PTT) and PTT Exploration and Production Public
Company Limited (PTTEP) to Stable from Positive and affirmed the companies'
Issuer Default Ratings (IDR) and PTTEP's senior unsecured rating at 'BBB+'. The
rating actions follow the revision of the Outlook on Thailand (BBB+/Stable) to
Stable from Positive on 17 March 2020.
The Outlook on PTT's National Long-Term
Rating is not affected, as national ratings are a relative measure of
creditworthiness between the sovereign and other issuers within Thailand.
KEY RATING DRIVERS
Strong Likelihood of Support: PTT's rating
is the same as its Standalone Credit Profile (SCP) of 'bbb+', but will be
equalised with that of the sovereign (BBB+/Stable) if its SCP weakens under
Fitch's Government-Related Entities (GRE) Rating Criteria. Fitch regards PTT's
status, ownership and control by the sovereign as 'Moderate'. The state
directly owns 51% of PTT and appoints its board. We see the support record and
expectations of state support as 'Strong'. There has been no explicit tangible
financial support from the state due to PTT's strong financial position, but we
believe support would be forthcoming if needed in light of PTT's strategic role
in Thailand's oil and gas sectors.
We believe the socio-political
implications of a default by PTT are 'Strong', as it would significantly affect
gas availability in Thailand, which in turn could cut electricity generation
and lower the country's energy security. We also see the financial implications
of a default as 'Strong', as it could limit domestic and foreign financing
options and increase the cost for the state and government-related entities.
PTTEP Equalised with PTT: PTTEP's rating
is equalised with that of its 65% parent, PTT, reflecting our assessment of
strong operating and strategic linkages between the two companies, as per our
Parent and Subsidiary Rating Linkage criteria. Our assessment is driven by the
integrated operations of the two companies; PTTEP contributed about 47% of
PTT's consolidated EBITDA in 2019 and is crucial for the group's upstream
integration. It sells more than 80% of its production to PTT and derives about
81% of its revenue from PTT. We assess PTTEP's SCP at 'bbb'.
The company also plays an important role
by supporting its parent's strategic role in Thailand's oil and gas sector and
improving the country's energy security. PTT has representation on PTTEP's
board and is involved in the appointment of some key management personnel. It
also supports PTTEP in strategic decisions, including large acquisitions.
Adequate SCP Headroom at PTTEP: Fitch expects
PTTEP's 'bbb' SCP to have adequate headroom to withstand the weak crude-price
environment. Its high natural gas sales, which represent 71% of total volume,
should lessen the drop in earnings, as the selling price of natural gas is
about 30% indexed to fuel-oil prices. It also takes about three to 24 months to
adjust, depending on the gas-supply contract. The company also hedges part of
its oil production, which should also limit the fall in revenue. As a result,
we expect PTTEP's a non-material impact on operating cash flow in comparison
with our expected fall in crude oil prices. We also expect PTTEP's credit
metrics to remain strong and for the company to maintain its near-zero net
leverage, driving its adequate SCP headroom. We have not revised PTTEP's capex
or dividend, but believe it has some flexibility to provide additional cushion.
PTT's SCP Headroom to Shrink: Fitch
expects PTT's financial profile to stay adequate for its 'bbb+' SCP, although
headroom is likely to shrink. We forecast FFO net leverage to weaken, but to
remain below 2.5x (2019: 1.8x) and improve towards 2x over the medium term. We
expect only minimal weakening of operating cash flow from upstream operations,
but slowing global growth could reduce the profitability of PTT's downstream
refining and petrochemical business and affect its financial profile. PTT
should have flexibility in its investments plans, though we have not factored
this into our assessment.
DERIVATION SUMMARY
Not applicable.
KEY ASSUMPTIONS
Not applicable.
RATING SENSITIVITIES
Rating Sensitivities for PTT
Developments that May, Individually or Collectively, Lead to Positive Rating Action
An upgrade of Thailand's IDRs, provided the likelihood of support remains intact.
Developments that May, Individually or Collectively, Lead to Negative Rating Action
A downgrade of Thailand's ratings.
Rating Sensitivities for PTTEP
Developments that May, Individually or Collectively, Lead to Positive Rating Action
Any upgrade in the parent's IDR, provided linkages remain intact.
Developments that May, Individually or Collectively, Lead to Negative Rating Action
A downgrade of PTT's IDR.Any significant weakening of linkages with the parent, though considered unlikely over the medium term.
Rating Sensitivities for Thailand
sovereign
The main factors that could, individually or collectively, lead to a positive rating action:

A resumption of resilient growth without the emergence of imbalances.Lower social and political tensions, for instance, reflected by improved governance and development indicators or a record of political stability.

The main factors that could, individually or collectively, lead to a negative rating action:

Renewed political disruption on a scale sufficient to negatively affect Thailand's economy.A significant and sustained rise in Thailand's government-debt ratios; for example, due to fiscal deterioration or the appearance of contingent liabilities on the sovereign balance sheet.

LIQUIDITY AND DEBT STRUCTURE
Not applicable.
ESG CONSIDERATIONS
ESG issues are credit neutral or have only
a minimal credit impact on the entity(ies), either due to their nature or the
way in which they are being managed by the entity(ies).   For more information on Fitch's ESG Relevance
Scores, visit www.fitchratings.com/esg.
Additional information is available on
www.fitchratings.com

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