TEXT-Fitch affirms ESSO (Thailand)'s B/E programme at 'F1(tha)'

Mon Nov 5, 2012 4:02am EST

Nov 05 - Fitch Ratings (Thailand) has affirmed ESSO (Thailand) Public Company Limited's (ESSO) bills of exchange (B/E) revolving programme of up to THB12bn at 'F1(tha)'. Under the programme, the maturity of each series of B/E is no more than 270 days.

Fitch expects ESSO's financial leverage, measured by adjusted net debt/EBITDAR, to remain high at around 3.5x-5.0x during 2013-2016 due to a weaker industry outlook. This is despite higher plant utilisation and no major capex being incurred. The refining and petrochemical businesses are likely to remain under pressure for the rest of 2012 and 2013 from weaker global economic conditions and capacity additions in the region. Nevertheless, Fitch expects ESSO's free cash flow (after dividend) to be positive from 2013 onward.

The rating reflects Esso's complex refinery capacity relative to peers, access to low-cost raw materials, cost competitiveness, and an established brand name. The integration of paraxylene production provides for a wider product range and reduces the volatility of the company's refining margins. ESSO also has a strong market position in oil retailing with the second-highest market penetration at about 16%

The rating also reflects operational and financial support from the company's ultimate parent, ExxonMobil Corporation. ESSO is able to exploit its parent's worldwide procurement network for crude oil and refined products, and use ExxonMobil's technology and engineering services, human resources and R&D to improve its operational efficiency. The ExxonMobil group also provides THB54bn in credit facilities and has granted a THB5bn inter-company loan to ESSO.

ESSO's credit profile is tempered by its vulnerability to oil prices, gross refining margin and petrochemical product-to-feed margin, which can significantly affect its earnings, working capital needs and cash flow generation. It is also exposed to single production site risk.

What Could Trigger A Rating Action?

Positive: Future developments that may, individually or collectively, lead to positive rating action include

- A substantial improvement in profitability and earnings stability through the cycle, and sustained low financial leverage

Negative: Future developments that may, individually or collectively, lead to negative rating action include

- Weakening ownership and support from ExxonMobil group

- Continuing negative free cash flow

- Sustained low GRM and petrochemical spreads, an increase in debt-funded investments resulting in sustained high leverage

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