PTT Treasury Center Company Limited -- Moody's assigns (P)Baa1 to PTT Public Co. Ltd.'s MTN program and Baa1 to proposed drawdown

Rating Action: Moody's assigns (P)Baa1 to PTT Public Co. Ltd.'s MTN program and Baa1 to proposed drawdown

Global Credit Research - 08 Jul 2020

Singapore, July 08, 2020 -- Moody's Investors Service has assigned a (P)Baa1 senior unsecured rating to the proposed USD2 billion global medium-term note (MTN) program established by PTT Public Company Limited (PTT, Baa1 stable) and its subsidiary PTT Treasury Center Company Limited (PTT TCC). Any issuance under the program by PTT TCC will be unconditionally and irrevocably guaranteed by PTT.

At the same time, Moody's has assigned a Baa1 senior unsecured rating to the proposed USD notes to be issued by PTT TCC as a drawdown from the MTN program. These notes will be unconditionally and irrevocably guaranteed by PTT on an unsubordinated basis. The guarantee will rank pari passu with the unsecured and unsubordinated obligations of PTT.

The outlook on the ratings is stable.

RATINGS RATIONALE

"The ratings assigned to the MTN program and the proposed drawdown are in line with PTT's Baa1 issuer rating, which reflects its strategically important role as Thailand's national oil and gas company," says Jacintha Poh, a Moody's Vice President and Senior Credit Officer.

PTT's Baa1 rating reflects (1) its standalone credit quality, as captured in its Baseline Credit Assessment (BCA), of baa2; and (2) Moody's expectation of a high likelihood of extraordinary support from the Government of Thailand (Baa1 stable) in times of need, as well as high level of dependence between the government and PTT, which has resulted in a one-notch uplift to its rating.

"We expect PTT's credit metrics will weaken because of lower oil prices but remain within its baa2 BCA rating parameters. Further, PTT has a track record of prudently managing its finances and has demonstrated flexibility in adjusting spending during previous downturns," adds Poh, who is also Moody's Lead Analyst for PTT.

Under Moody's oil price assumptions of Brent averaging $35 per barrel in 2020 and $45 per barrel in 2021, Moody's expects PTT's adjusted RCF/net debt will range between 25%-30% through 2020-21 against its downgrade threshold of 25%.

PTT announced a reduction in its 2020 investment plan in May, which will primarily be achieved by deferring greenfield projects. The company's committed capital spending on expansion projects include (1) the Clean Fuel Project at Thai Oil Public Company Limited (Baa2 negative), which began construction in 2019; and (2) the naphtha cracker and two plants producing propylene oxide and polyols at PTT Global Chemical Public Company Limited (Baa2 stable), which are scheduled for completion in the second half of 2020.

Moody's projections assume PTT's capital spending and dividend payments will be around THB230 billion and THB60 billion, respectively, in 2020.

The baa2 BCA reflects the company's (1) strategically important position as Thailand's national integrated oil and gas company and sole operator in gas transmission and distribution; (2) significant upstream production and control, with the company accounting for over 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 the company's appetite to increase scale, which translates into higher capital investment and acquisition risk, execution risks associated with expansion plans in downstream segments, and a less-than-50% 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 ongoing global effort to transition to low-carbon energy will gradually lower demand for petroleum products in the coming decades. For PTT, this risk is partly mitigated by Thailand's significant dependence on oil and gas imports and the company's production mix, which for over 70% comprises natural gas .

PTT also plans to reduce its carbon footprint and increase its revenue from clean and green businesses.

2) Thailand's aging population will constrain the growth in 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's close ties with its largest shareholder, the Government of Thailand, which has significant oversight on the company's strategic planning. PTT has large capital spending plans for the next five years. Some of these projects are in line with the government's objective of ensuring Thailand's energy security, and support the company's long-term goals. Such high capital spending levels have been incorporated in Moody's assessment of the company's credit metrics.

The stable outlook on the ratings is in line with the outlook on Thailand's sovereign rating and reflects Moody's expectation that PTT will maintain a prudent financial profile as it pursues growth.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

Moody's will upgrade PTT's Baa1 rating if (1) Thailand's Baa1 sovereign rating is upgraded; (2) PTT's BCA is at least maintained at the current baa2 level; and (3) there is no change in Moody's assessment of support for PTT.

In the near term, an upgrade of PTT's baa2 BCA is unlikely, given the company's large planned expansion projects.

Nonetheless, Moody's could upgrade PTT's BCA to baa1 if the company maintains a solid credit and liquidity profile 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.

However, an improvement in PTT's BCA will not automatically result in an upgrade of its issuer rating.

Moody's could downgrade PTT's issuer rating if (1) the company's BCA deteriorates below baa3; or (2) the Thai government's ownership of the company falls below 51% or government control is reduced by some other means, which would require a reassessment of the level of support incorporated into PTT's ratings.

Additionally, Moody's could downgrade PTT's BCA to baa3 if (1) oil prices fall significantly or refining margins materially decline such that they weaken the company's operating cash flow; (2) its oil and gas reserves continue to decline to below four years; or (3) the company undertakes large debt-funded acquisitions, resulting in weaker credit metrics and higher execution risk.

Credit metrics that could lead to a downgrade of 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 PTT's BCA to baa3 will not automatically result in a downgrade of its issuer rating.

The methodologies used in these ratings were Integrated Oil and Gas Methodology published in September 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1172345, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, 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, and upstream exploration and production through its 65%-owned subsidiary, PTT Exploration & Production Public Company Limited (Baa1 stable).

PTT holds interests in three of six oil refineries in Thailand which, together with its six gas separation plants, support the company's petrochemical business. The company is also directly engaged in oil marketing and international trading.

The company's largest shareholder is Thailand's Ministry of Finance, which owns 51.1% of PTT's total share capital, while the government-invested Vayupak Mutual Funds owns a further 12.2%.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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.

Jacintha Poh VP - Senior Credit Officer 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 Vikas Halan Associate Managing Director 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

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