TRIS Rating has assigned the rating of “A-” to the proposed issue of up to Bt10,000 million in senior debentures of Bangchak Petroleum PLC (BCP). At the same time, TRIS Rating has affirmed the company and current issue ratings of BCP at “A-”. The outlook remains “stable”. The proceeds from the new debentures will be used for business operation and expansion. The ratings reflect the proven operating record of BCP’s refinery, the integration of BCP’s refining and marketing businesses, its diversification into solar power business, and the support from PTT PLC (PTT). The ratings are partially weighed by the typical fluctuations in oil prices and the gross refining margin (GRM). The “stable” outlook reflects the expectation that BCP will sustain its strong market position in the oil retailing segment. The investments in solar power projects are expected to help generate reliable streams of income and partially offset the fluctuations in the oil business over the medium term.
BCP was established in 1985 and was listed on the Stock Exchange of Thailand (SET) in 1993. The company owns and operates a complex oil refinery, located in Bangkok. The refinery has a capacity of 120 thousand barrels per day (KBD), accounting for approximately 11% of the total refinery capacity in Thailand. The company operated 1,074 service stations nationwide as of December 2013 under the “Bangchak” brand. BCP also operates 70 megawatts (MW) solar power plants. In 2013, the refinery segment generated 70% of BCP’s EBITDA (earnings before interest, tax, depreciation, and amortization), the marketing segment (sales through service stations and to industrial customers) comprised 15%, while the solar power segment accounted for the remaining 15%. As of 6 March 2014, PTT held 27.22% interest in BCP, the Ministry of Finance (MOF) held 9.98%, and the remaining 62.80% was held by the public.
BCP’s strong business profile reflects synergy value from the integration between complex refinery and marketing network. As a complex refinery, BCP is able to process a variety of crude oils, yielding high proportions of high GRM products such as diesel fuel and JET fuel. In 2013, crude intake was ramped up to 99.3 KBD from 73.7 KBD in 2012. The company’s refined product mix was diesel (49%), gasoline (20%), fuel oil (17%), jet fuel (11%), and liquefied petroleum gas (LPG) (3%). The base GRM was US$5.8 per barrel in 2013. The uncertainty of the global economy has put pressure on the oil prices and the GRM.
The total volume of refined products sold by BCP’s marketing segment increased, rising from 381 million liters per month (ML/MO) in 2012 to 405 ML/MO in 2013. Refined products sold through BCP’s service stations accounted for 60% of the total sales volume. The remainder (40% of the sales volume) was sold directly to industrial customers. In 2013, BCP was the third largest oil retailer in Thailand, with a market share of 14.8% in terms of sales volume through service stations, up from 13.8% in 2012.
BCP has diversified into solar power business since 2011. BCP has power purchase agreements totaling 118 MW. Each contract included a tariff adder of Bt8 per kilowatt-hour (kWh). As of year-end 2013, 70 MW of capacity was in operation and 48 MW of capacity was under construction. The plants under construction are expected to be completed within 2014. Once all the 118 MW of solar power generating capacity are in operation, BCP expects the solar power segment to generate about Bt2,500-Bt2,800 million of EBITDA per year, or about 20%-25% of the company’s expected EBITDA during 2015-2016. Cash flow generations from the solar power business are expected to serve as a cushion to protect the company’s profits from the volatility of the oil refining and marketing segments.
BCP’s financial profile in 2013 was in line with TRIS Rating’s expectation. BCP’s total revenue in 2013 increased by 12.9% to Bt186,514 million, as higher sales volume largely offset a decrease in oil prices. The operating margin (operating income before depreciation and amortization as a percentage of sales) was 4.0% in 2013. BCP’s capital structure remained satisfactory, with total debt to capitalization ratio at 37.3% as of year-end 2013.
During 2014-2016, TRIS Rating’s base-case expects BCP’s EBITDA to stay in a range of Bt7,000-Bt10,000 million per year, based on the crude intake of 100 KBD and the base GRM at about US$6.5 per barrel on average. BCP’s total capital expenditures, including investment during 2014 to 2016 are expected at approximately Bt29,400 million. The expenditures are designated for solar power projects, refinery improvements and debottlenecking program, plus the expansion of BCP’s marketing network, renewable energy business and other new business projects. Given the expected levels of EBITDA and capital expenditures, BCP’s total debt to capitalization ratio may increase slightly during the investment period. However, TRIS Rating expects that the ratio will not exceed 45% during 2014-2016.
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