“Petron Corp. (Petron) will be borrowing P5.5 billion long-term. The borrowing is rated PRS Aaa,†PhilRatings announced.
A rating of PRS Aaa is given to debt obligations with the “smallest degree of investment risk. Interest payments are protected by a large or by an exceptionally stable margin and principal is secured. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.†A PRS Aaa is the highest rating that can be assigned on the PhilRatings rating scale.
PhilRatings’ credit rating considers the following: the company’s solid market leadership in the domestic fuels market; sustained earnings and cash flow generation providing strong coverage of interest and debt service; Petron’s sound diversification strategy; reliable crude supply from Saudi Aramco; the company’s moderate debt profile; and its diverse funding sources which boost the company’s financial flexibility. Prevailing risks such as declining domestic petroleum consumption, as well as continuing, highly probable fuel cost escalation were likewise taken into account and management is seen to have put measures in place to manage such risks going forward.
Revenues from domestic sales appear well assured with Petron’s continuing dominance in the market — a commanding 38% market share – made secure by an extensive sales and distribution infrastructure, continuing product and market development efforts, a valuable brand name and not the least, a demonstrated fierce competitive spirit that permeates the organization. Revenues from exports have shown good potential, as demonstrated in the company’s 2005 performance, and exports, together with new product offerings in 2008 and onwards should improve the financial results of the company even in a domestic market which is seeing a decline in fuel oil consumption.
It will be revenues from petrochemicals from the expanded manufacturing facilities to be completed in 2008, however, that are expected to give a significant boost to cash inflows. The identified markets to be served by the petrochem products appear well in place, and there is good assurance that the ongoing construction and setting up of the manufacturing facilities will be completed and will produce on time, the planned new products. Petron will convert its Thermofor Catalytic Cracking Unit (TCCU) to a Petrochemical Fluidized Bed Catalytic Cracking Unit (PFCCU) and will also install a Propylene Recovery Unit. The conversion will allow the recovery of more white products like LPG, gasoline, aviation fuel, and propylene. Propylene is a high value petrochemical, a feedstock used in the manufacture of plastic resins used in the production of appliances, automobile parts, and detergents. The P5.5 billion borrowing will be used for the setting up of the PFCCU. In addition, Petron will likewise install a benzene-toulene-xylene (BTX) unit. The company is likewise presently working on measures that will position it well in the market considering the government’s Alternative Fuels Program.
Petron’s total revenues in 2005 amounted to P191.5 billion while net income was at P6.0 billion. For the first quarter of 2006, revenues were at P52 billion while net income was at about P1 billion, representing a 16% growth from that for the same period last year. Operating cash flows are projected to continuously improve in 2008 and onwards, and will be more than adequate to fund scheduled capital expenditures, as well as settle maturing debt obligations, including the proposed borrowing. Petron’s leverage position is moderate, considering the industry it operates in, and liquidity is sound. The company has a significant amount of unused credit facilities available, enhancing Petron’s financial flexibility.