OREANDA-NEWS.  Fitch Ratings (Thailand) has affirmed PTT Global Chemical Public Company Limited's (PTTGC) National Long-Term Rating at 'AA(tha)', National Short-Term Rating at 'F1+(tha)', and the National Long-Term senior unsecured rating at 'AA(tha)'. The Outlook is Stable.

KEY RATING DRIVERS

Reduced Rating Headroom: Fitch has revised down PTTGC's projected FFO in 2015-2017 to reflect weak spreads on petrochemical products and pressures on refining margin from new capacity. Notwithstanding this, Fitch still expects the company to maintain its FFO-adjusted net leverage below 1.5x. However, its headroom on financial leverage will be smaller, given lower projected operating cash flows and large planned capex.

Large but Flexible Capex: Committed capex of USD1.7bn (THB59.2bn) over 2015-2019 can be managed within PTTGC's operating cash generation. The company has further uncommitted capex totalling USD4.5bn (THB150.7bn) in its five-year investment plan, although this spending can be deferred if market conditions weaken.

Fully Integrated, Low-Cost Producer: PTTGC is Thailand's largest fully integrated petrochemical and refining company. The company has a wide product range and benefits from its large operating scale. PTTGC enjoys competitive feedstock costs as most of its feedstock for olefins is gas-based, which is available domestically and cheap relative to naphtha. PTTGC also benefits from a favourable feedstock supply arrangement with its major shareholder PTT Public Company Limited (PTT, 49% ownership, AAA(tha)/Stable), which reduces margin volatility in times of variable market conditions.

Close Links with PTT: PTTGC's rating benefits from a one-notch uplift to its standalone credit profile, reflecting its strategic importance to and operational links with PTT. Some of the benefits from its association with PTT, such as feedstock supply, are incorporated in the standalone credit assessment.

Highly Cyclical Business: PTTGC's credit profile is tempered by its vulnerability to the highly cyclical petrochemical sector and fluctuations in refining margins and crude oil prices, which can result in volatile margins and operating cash flow generation.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- refining margin to improve in 2015 due to increase in product demand; margin to soften in 2016;
- aromatics spreads to remain weak, due to over-supply
- only 50% of uncommitted capex, spread over five years
- dividend payout at 45% of net income.

RATING SENSITIVITIES

Positive: Developments that may, individually or collectively, lead to positive rating action include:
- evidence of stronger ties with PTT
- a positive rating action on the company's standalone rating is unlikely in the medium term, given PTTGC's large capex plans and long lead times in cash generation from these investments.

Negative: Developments that may, individually or collectively, lead to negative rating action include:
- a sustained increase in leverage (as measured by FFO-adjusted net leverage) to above 1.5x due to large debt-funded investments and/or persistently thin refining margins and petrochemical spreads
- weakening of linkages with PTT.