Fitch Ratings (Thailand), a subsidiary of UK-based Fitch Ibca, has today affirmed Thailand's Bangkok Aviation Fuel Services Public Company Ltd's (BAFS) Senior Unsecured Long- and Short-term National ratings of A- (tha) and F2 (tha), respectively. The Outlook on the ratings is Stable.
The ratings of BAFS are based on its monopoly position as the sole operator of aviation fuel services at Bangkok International Airport (BIA) and its securing of long-term sale contracts to major customers which has resulted in stable cash flow generation. While it will lose its monopoly position after the opening of the new international airport, Suvarnabhumi Airport (SA),
BAFS should still remain the dominant provider of aviation fuel services at SA. This is expected to support strong earnings growth over the medium term due to the new airport's increased capacity and the planned service fee hike, although the opening has been delayed to mid-2006. The ratings are also supported by BAFS's strong ownership structure and the good track record of its senior management.
On the other hand, BAFS's financial leverage has risen sharply over the past three years due to its substantial debt-funded investments in SA. Its net debt had increased to THB1.9 billion at end-1Q05 from a net cash position in 2002, while net debt to annualised EBITDA weakened to 2.6x at end-1Q05 (FYE02; net cash). BAFS plans to spend another THB2.1bn to complete all investments in SA in 2005.
Due to the significant capital outlay and expected high dividend payout, BAFS's net debt to EBITDA ratios are likely to further weaken to about 5.0x in 2005 and 4.0x in 2006, which, while high, are expected to be temporary. The opening of SA should result in strong EBITDA growth, helping to lower leverage to between 2.0x-2.5x by 2007/08. However, a further delay in the opening of the new airport would prolong the period of the company's high leverage and weaken debt serviceability, which could adversely affect the company's credit ratings.
Given its USD-linked revenue, BAFS is also exposed to foreign exchange risk, although this is mitigated by forward contracts. Rising oil prices are also affecting the airline industry and aviation fuel volumes which could also affect earnings growth.
The Stable Outlook reflects the expectation that the new airport will open in mid-2006 thereby reducing leverage. While its net debt to EBITDA is expected to increase sharply, BAFS's stable cash flows and expected growth in earnings from the new airport should help mitigate the higher leverage risk.
Established in 1983, BAFS is the sole provider of aviation fuel services at BIA, which accounts for over 95% of the country's fuel uplift volume. At SA, BAFS will be the single operator for the main depot and the hydrant pipeline services, while it will be one of the two operators to operate the into-plane service. BAFS's largest shareholder is Thai Airways with 22.6%, while other shareholders are dispersed amongst PTT, AOT, ESSO, Caltex, Shell, Air Total and ExxonMobil Aviation, holding another c.40%. Listed on the Stock Exchange of Thailand in 2002, the company's market capitalisation was THB3.8bn at end-July 2005.
The ratings of BAFS are based on its monopoly position as the sole operator of aviation fuel services at Bangkok International Airport (BIA) and its securing of long-term sale contracts to major customers which has resulted in stable cash flow generation. While it will lose its monopoly position after the opening of the new international airport, Suvarnabhumi Airport (SA),
BAFS should still remain the dominant provider of aviation fuel services at SA. This is expected to support strong earnings growth over the medium term due to the new airport's increased capacity and the planned service fee hike, although the opening has been delayed to mid-2006. The ratings are also supported by BAFS's strong ownership structure and the good track record of its senior management.
On the other hand, BAFS's financial leverage has risen sharply over the past three years due to its substantial debt-funded investments in SA. Its net debt had increased to THB1.9 billion at end-1Q05 from a net cash position in 2002, while net debt to annualised EBITDA weakened to 2.6x at end-1Q05 (FYE02; net cash). BAFS plans to spend another THB2.1bn to complete all investments in SA in 2005.
Due to the significant capital outlay and expected high dividend payout, BAFS's net debt to EBITDA ratios are likely to further weaken to about 5.0x in 2005 and 4.0x in 2006, which, while high, are expected to be temporary. The opening of SA should result in strong EBITDA growth, helping to lower leverage to between 2.0x-2.5x by 2007/08. However, a further delay in the opening of the new airport would prolong the period of the company's high leverage and weaken debt serviceability, which could adversely affect the company's credit ratings.
Given its USD-linked revenue, BAFS is also exposed to foreign exchange risk, although this is mitigated by forward contracts. Rising oil prices are also affecting the airline industry and aviation fuel volumes which could also affect earnings growth.
The Stable Outlook reflects the expectation that the new airport will open in mid-2006 thereby reducing leverage. While its net debt to EBITDA is expected to increase sharply, BAFS's stable cash flows and expected growth in earnings from the new airport should help mitigate the higher leverage risk.
Established in 1983, BAFS is the sole provider of aviation fuel services at BIA, which accounts for over 95% of the country's fuel uplift volume. At SA, BAFS will be the single operator for the main depot and the hydrant pipeline services, while it will be one of the two operators to operate the into-plane service. BAFS's largest shareholder is Thai Airways with 22.6%, while other shareholders are dispersed amongst PTT, AOT, ESSO, Caltex, Shell, Air Total and ExxonMobil Aviation, holding another c.40%. Listed on the Stock Exchange of Thailand in 2002, the company's market capitalisation was THB3.8bn at end-July 2005.