• 
• 

Published on January 5, 2008

The outlook is stable, according to the credit rating agency's statement.

These debentures were transferred from Aromatics (Thailand) (ATC) after the recent completion of the amalgamation between ATC and Rayong Refinery (RRC).

Simultaneously, the agency has upgraded the national long-term rating of ATC's secured and amortising debentures to "A+(tha)" from "A-(tha)" and routinely removed the company's Rating Watch Positive designation assigned when the merger was announced in July.

The rating assigned to PTTAR's secured debentures reflects its high operational link and support from PTT Plc, larger operating scale and more flexible and diversified operation after the amalgamation, which will, to a certain extent, help reduce the overall earnings volatility.

Fitch notes the amalgamation will also enhance the company's economy of scale and market position, and will provide stronger financial position with lower financial leverage and higher coverage ratios. After the completion of the second aromatics complex (CPX II), PTTAR will become one of the top five aromatics producers in Asia and one of the largest complex oil refineries in Thailand.

The rating is also based on PTTAR's secured long-term feedstock and aromatics sale agreements, its modern and complex refinery and its cost-competitive position.

Most of PTTAR's aromatics products are sold to PTT under long-term contracts, while PTTAR sources condensate locally from the Gulf of Thailand, secured under a long-term contract with PTT.

In addition, the rating reflects the seniority and secured nature of the debt. The debentures are secured by the operating plant, machinery and land lease assignment of ATC. Moreover, PTTAR's secured debt was only 14.7 per cent of earnings before interest, tax, depreciation and amortisation, 2.1 per cent of total assets and 6.2 per cent of total debt in 2006.

PTTAR's credit strengths are tempered by its high vulnerability to oil prices and fluctuations in its gross refinery margin, as well as the cyclical nature of its aromatics business. PTTAR is also exposed to supply risks on its oil refining business owing to a high dependence on foreign oil supplies. Other credit concerns relate to its relatively high investment plan, which will lead to higher debt and financial leverage over the near term, as well as its high customer concentration.

The stable outlook reflects the agency's expectation that PTTAR's stronger market position and improved financial position will support its relatively high investment plan. Fitch also expects PTTAR to keep its leverage consistent with the current credit metric throughout the industry cycle.

Incorporated last December 27, PTTAR was a result of the amalgamation of ATC, the first and largest aromatics producer in Thailand, and RRC, an oil-refinery complex with a capacity of 145,000 barrels per day.

After the amalgamation, PTT, Thailand's largest and state-owned fully-integrated oil and gas company, owns a 48.7-per-cent stake in PTTAR.

 The Nation