PTT rating upgraded

In the statement, the rating agency commended PTT's  strategic importance and function as a policy vehicle for the country's energy security and development.

"PTT is very likely to maintain its natural monopoly in gas transmission and distribution through its established pipeline network and its long-term lease on the gas pipeline that will be transferred back, helped further by a secure demand via its long-term sales contracts and the high barriers of entry to its capital-intensive business," it said.

Through its subsidiary, PTT Exploration and Production (PTTEP), PTT is one of Thailand's major exploration and production companies, with the country's largest reserves and second-largest production. PTT also off-takes and resells virtually all of Thailand's natural gas, and has the largest market share of LPG and oil sales.

Fitch notes that the ratings are supported by PTT's good management track record and its solid cash flow generating capability. The gas interests are the main contributor to its income, and cash flows from this activity have proven relatively stable, thanks to long-term supply and sales agreements with minimum take-or-pay conditions, a cost-plus pricing structure and generally less volatile gas prices relative to oil prices.

The ratings also reflect the state's implicit support for PTT, which has resulted in the ratings being uplifted by one notch from their stand-alone level. The implicit support is based on the state's majority ownership, the size, importance of PTT's activities to Thailand and the company's near-monopoly position in the local natural gas industry. The National ratings upgrade takes into account, more fully, the state's implicit support and to be consistent with the new International ratings.

PTT's credit profile is tempered by its vulnerability to fluctuation in commodity prices, significant budgeted capital expenditure, and exposure to regulatory and political risks and some foreign exchange risk. PTT has budgeted Bt241 billion for its five-year investment plan (2008-2012).

The rating outlook is stable, Fitch said, on expectation that PTT will maintain its very strong market positions, in particular in the gas business, and its financial profile will be kept consistent with the current ratings throughout the industry cycle, and that the government maintains a majority stake. The ratings might be downgraded to their standalone level if the links between the state and the company weaken.