Year 2009

 May

PTTCH: Outlook cut no deterrent
Moody's concerned about big investments

By: YUTHANA PRAIWAN

PTT Chemicals Plc (PTTCH) insists the downgrade by Moody's Investors Service of its company outlook will have no effect on the company.

Moody's on Tuesday announced it was cutting PTTCH's ratings outlook to negative from stable for the company's Baa3 domestic currency issuer rating and foreign currency senior unsecured rating.

"The change in outlook reflects PTT Chemical's weakening financial profile, resulting in turn from its continuing sizeable investments against the backdrop of subdued petrochemical market conditions," said Renee Lam, a vice-president and senior analyst at Moody's.

But a PTTCH executive said Moody's analysis was regarding the company's outlook, and was not related to its debenture credit rating.

The company's recent issue of 12 billion baht worth of bonds still has an A+ rating from Fitch Ratings.

"It [the Moody's outlook downgrade] will definitely not affect our fund-raising plan, either debenture issues or loans," said the executive who declined to be named.

"You have to understand that the Moody's move is an analysis for short-term prospects. This is not the first time it has expressed concern over our huge expansion during the economic slowdown."

Moody's stated the negative outlook could be revised back up to stable after PTTCH's new 1-million-tonne olefins cracker is ready to market its output, or demand rises significantly, said the executive.

PTTCH, the country's largest petrochemical manufacturer, earlier issued 12 billion baht in debentures to finance the olefins cracker and two downstream production plants worth a total of $1.3 billion.

Its shareholders have approved the rasing of an additional 4.6 billion baht, president Veerasak Kositpaisal said previously. It also plans to seek approval for further fund-raising in the future.

While PTTCH's significant capacity expansion and new output will strengthen its market position in the long term, massive capital spending is required at a time when its profitability and cashflow generation are expected to be dampened by the challenging industry conditions, said Moody's.

"With a capital expense of about 30 billion baht scheduled for 2009-10, and a high likelihood of weak operating cash flow generation in the next 12 to 18 months, this company's adjusted debt to earnings before interest, tax, depreciation and amortisation could increase further in 2009, reducing the cushion it enjoys within the current rating," said an analyst.

However, the Moody's report stated that its Baa3 rating continued to reflect PTTCH's leading position in the domestic market with its competitive cost structure and security in feedstock supply.

PTTCH shares declined 11% yesterday on the Stock Exchange of Thailand to 52 baht in trade worth 708 million baht.

This article is written by Bangkok Post

15/05/2009

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