Moody's Investors Service has changed IRPC Plc's outlook to positive from stable. Moody's also affirmed IRPC's Ba1 corporate family rating (CFR).
"The change in rating outlook to positive reflects the structural improvement in IRPC's profitability owing to its higher operating margins and refinery utilisation since the completion of its large-scale upgrading programme," said Rachel Chua, a Moody's assistant vice-president and analyst.
IRPC's US$1.5-billion capital expenditure programme was completed in phases during 2016-17. The refiner is now able to upgrade its loss-making fuel oil into higher-margin products.
IRPC's gross integrated margin (GIM) -- the difference between the selling price of its products and a barrel of crude feedstock -- strengthened to $13 per barrel in 2016 and $14.50 in 2017 from $7 in 2013.
"Moreover, we expect IRPC will sustain the improvement in its leverage during 2018-19, with retained cash flow/adjusted debt of 18%-20% and adjusted debt/ebitda below 3.0 times," said Ms Chua, who is Moody's lead analyst for IRPC.
Moody's projections assume that IRPC's GIM will stay at $14-$14.50 per barrel through 2019, thereby supporting annual adjusted ebitda generation of around 24 billion baht.
IRPC's Ba1 CFR incorporates a one-notch uplift that reflects Moody's expectation that its parent, PTT Plc (Baa1 stable), will provide extraordinary support to IRPC in a distress scenario, given the close integration between the two companies.
IRPC's underlying credit strength is underpinned by its moderate refining scale and downstream petrochemical integration, the long-term feedstock supply and product offtake agreements with PTT, as well as the improvement in its credit metrics after the completion of its upgrading programme.
At the same time, the rating is constrained by IRPC's concentration risk given its single-site operations, the short operating track record of the upgraded refinery, its weak liquidity profile and the exposure to the inherent cyclicality in the refining and petrochemical sector.
The positive rating outlook incorporates Moody's expectations that IRPC will sustain the improvement in its credit metrics over the next 12-18 months, supported by stable operational performance at its upgraded facilities and healthy operating cash flow generation.
Moody's also expects the company to maintain a prudent approach towards funding future investments and shareholder distributions.
IRPC's rating could be upgraded if the company maintains stable operations at its upgraded refinery and petrochemical plants, such that it generates healthy operating cash flow and margins. Specific metrics Moody's would consider for an upgrade include retained cash flow/adjusted debt above 25%, adjusted debt/ebitda below 3.0 times and ebit/interest above 4.5-5.0 times on a sustained basis.
IRPC's Ba1 CFR will be downgraded if (1) PTT's rating is downgraded, or (2) PTT's ownership in IRPC falls or PTT's control of IRPC is reduced by some other means, which would require a reassessment of the level of parental support.
IRPC's rating outlook could return to stable if (1) the refining and petrochemical operating environment deteriorates materially, (2) its upgraded plant faces material operational disruptions, (3) it makes material debt-funded acquisitions or investments, or (4) it engages in aggressive shareholder distributions.
IRPC is an integrated refinery and petrochemical operator in Thailand. It owns the third-largest refinery in the country with a nameplate capacity of 215,000 barrels per day.
As of March 31, IRPC was 48.05%-owned by PTT, which was in turn 51.11%-owned by the Thai government.