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FITCH AFFIRMS THAILAND'S NATIONAL PETROCHEMICAL AT A+(tha)/F1(tha)

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Bangkok--Mar 11--Fitch Ratings (Thailand)

Fitch Ratings-Bangkok/London : Fitch Ratings (Thailand) Limited has affirmed the Long-term and Short-term National ratings of National Petrochemical (NPC) at 'A+(tha)' and 'F1(tha)', respectively. The agency also affirmed the Long-term National rating of NPC's outstanding THB3.0bn Senior Unsecured Amortising Debentured No.1/2545 due in 2550 at 'A+(tha)'. The Outlook is Stable. The ratings reflect the company's strong ownership structure and support from PTT Plc., secured long-term feedstock supply and olefins sales agreements, favourable feedstock price structure, cost-competitive position, solid financial position and natural FX hedge from US dollar-linked revenue.

NPC is a joint venture between PTT and downstream producers to operate the first olefins plant in Thailand. PTT is the supplier of NPC's main feedstock and its largest shareholder (37.9%). More than half the company's olefins capacity is sold through long-term agreements with four downstream producers, which are also its shareholders. As the only gas-based olefins producer in Thailand, NPC enjoys cost advantages from a favourable feedstock agreement. NPC secures its feedstock from PTT under a profit-sharing formula, which leads to less volatile feedstock price movement. It also indirectly allows NPC to backward integrate to PTT's gas separation business. Nonetheless, NPC's profitability is highly sensitive to volatile petrochemical prices. While the utilities operation provides some buffer, the majority of NPC's EBITDA comes from petrochemical operations.

Despite a strong business rationale for moving into the high-density polyethylene (HDPE) market, there are some concerns over NPC's ability to penetrate the oversupplied domestic market quickly. However, NPC's feedstock cost advantages as well as sales contracts with international traders should alleviate the risks on the HDPE project, to an extent. In the long term, this forward integration should provide full utilisation of olefins capacity, cost efficiencies and help stabilize the company's overall margins. NPC has so far invested about 20% of the total cost of the HDPE project, which is expected to be commercially operating by August 2004.

Despite the average weaker olefins prices and the 68-day plant shutdown during 2002, the company's financial position has remained strong with a consolidated net debt to EBITDA ratio of 0.6x, although this has risen from 0.3x in 2001. Its EBITDA to interest expense ratio strengthened to 9.1x in 2002 from to 8.0x in 2001, due to the decrease in interest expenses. At end 2002, the company had total debt of THB5.1bn. Due to HDPE capex, NPC's financial leverage is likely to increase moderately in 2003 to about 1.0x. With the expected price upturn and earnings contribution from the HDPE project, NPC's financial leverage should fall below 0.5x by end-2004, with a net cash position projected in 2005.

A credit update report on National Petrochemical Plc. will be available on the agency's web site, www.fitchratings.com
CONTACT:
Pimolpa Simaroj, Associate Director, Corporates +662 655 4761
Vincent Milton, Managing Director               +662 655 4759

Note to Editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries where the sovereign's foreign and local currency ratings are below 'AAA'. National ratings are not internationally comparable since the best relative risk within a country is rated 'AAA' and other credits are rated only relative to this risk. They are signified by the addition of an identifier for the country concerned, such as 'AAA (tha)' for National ratings in Thailand.   End.

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