Fitch Ratings Thailand downgraded three large local companies in the first half of this year based on their weakened ability to repay debt, attributed to increased financial leverage.
Speaking at a seminar about Thailand's corporate credit outlook hosted by Fitch Ratings on Wednesday, Obboon Thirachit, senior director for corporate at the agency, said local companies, particularly in the chemical and energy sectors, are expected to face higher pressure for earnings recoveries this year because of weaker demand amidst new supply.
In addition, earnings for oil and gas companies are expected to moderate in line with anticipated softening in oil and gas prices.
However, increased public investment is likely to support earnings recovery in the building materials sector in 2024.
The three companies downgraded from March to May this year are IRPC, HMC Polymers, and Bangkok Aviation Fuel Services.
"Overall, the financial leverage of large local companies covered by Fitch Ratings is expected to decline over the next 12 months, in line with lower investment after those companies invested significantly the past 12 months," he said.
Last year, Fitch Ratings increased negative rating actions for many companies based on slow earnings recovery attributed to soft demand, oversupply and high costs. The sectors most affected were chemicals and building materials.
Moreover, investments in the power sector expanded greatly for renewable portfolios, even for companies with low rating headroom, combining to cause negative rating actions, said Mr Obboon.
The energy transition to a low-carbon business model has driven higher investment in renewable energy within the local power industry.
Thailand aims to become carbon-neutral by 2050 and achieve net-zero emissions by 2065.
Under this scenario, Fitch forecasts the portion of new power generation from renewable energy to increase to at least 50% by 2050.
In addition, the business sector is expected to shift towards green energy use in transport, utilising electricity vehicle (EV) technology, which is projected to account for more than 30% of vehicles by 2030, according to the agency.
Fitch Ratings Thailand covers 23 local companies. The financial leverage of these operators increased, with rising earnings before interest, tax, depreciation and amortisation (Ebitda) net leverage at the end of last year.
According to the agency, Ebitda net leverage for major Thai corporate bond issuers under Fitch Ratings coverage at the end of 2023 totalled: PTT at 1.6 times, True at 4.7 times, CP All 4.3 times, SCC 6.2 times, CPF 9.7 times, ThaiBev 3.6 times, and GULF 7.4 times.