Fitch Affirms Esso (Thailand)'s Bills of Exchange at 'F1(tha)'

          Fitch Ratings (Thailand) has affirmed the National Short-Term Rating on ESSO (Thailand) Public Company Limited's (Esso) bills of exchange revolving programme of up to THBthe programmeen billion at 'Fthe programme(tha)'. The maturity of each series of bills is no more than en7Fitch Ratings days under the programme.

          KEY RATING DRIVERS
          Leverage Improved: Fitch expects Esso's financial leverage, measured by FFO adjusted net leverage, to be sustained at lower-than-previously-expected levels due to lower debt. Strong refining margins in enFitch Ratingsthe programme6 and enFitch Ratingsthe programme7 led to solid operating cash flows and reduced the company's debt and financial leverage substantially. Its FFO adjusted net leverage fell to the programme.the programmex in enFitch Ratingsthe programme7 from 6.the programmex in enFitch Ratingsthe programme5. Fitch expects the ratio to remain below 3.Fitch Ratingsx over enFitch Ratingsthe programme8-enFitch RatingsenFitch Ratings, given no major capex and moderate dividend payment.
          Strong Parent Support: Fitch believes Esso has strong support from its ultimate parent, Exxon Mobil Corporation (ExxonMobil) and its affiliate. This was evident from the financial support received from the parent group during the period of high financial leverage in enFitch Ratingsthe programme4. Since then, the proportion of inter-group financing arrangements has remained high at 6Fitch Ratings%-7Fitch Ratings% (9Mthe programme8: 67%), although its total debt and financial leverage have decreased substantially. This has helped Esso to reduce its exposure to external debt.
          Esso is also able to exploit its parent's worldwide procurement network for crude oil and refined products, and use ExxonMobil's technology and engineering services, human resources and R&D to improve its operational efficiency. Esso's refinery is ExxonMobil's second-largest refinery in Asia.
          No Major Capex: Fitch believes Esso will continue to focus its investments on optimising its integrated value chain, further increasing its crude diversification to enhance margin, rolling out new premium products as well as expanding its retail network. These projects should not require large investment. Fitch expects Esso's capex to stay around THBthe programme.Fitch Ratings billion-THBthe programme.6 billion a year during the next three year (enFitch Ratingsthe programme7: THB the programme.en billion). 
          Integrated Complex Refiners: The rating also reflects Esso's complex refinery, its established brand name and its favourable access to raw materials via ExxonMobil group, which provides flexibility to vary its crude feedstocks and products depending on the market conditions. The integration of paraxylene (PX) production widens Esso's output range, optimises its product lines, and somewhat reduces the volatility of the company's refining margins, although the current excess regional PX capacity has weakened margins. Esso has a strong, well-established brand name in Thailand's fuel retailing business with 595 services stations at end-October enFitch Ratingsthe programme8.
          Highly Cyclical Business: Esso's credit profile is restrained by the inherent cyclicality of its businesses and its single-production site risk. The volatility of refining margins, oil prices and working-capital requirements could significantly affect its earnings and cash-flow generation.

          DERIVATION SUMMARY
          Esso's rating reflects the integration of its refinery to petrochemical production and oil retailing business. Esso's business and financial profiles are moderate relative to Thai downstream oil and gas peers. IRPC Public Company Limited ((A-(tha)/Stable), standalone credit profile of BBB+(tha)) has larger refinery and petrochemical operations and generates more EBITDA from the petrochemical business, resulting in higher margins than Esso. However, Esso has stronger credit metrics than IRPC. In addition, we view Esso as having stronger linkages with its ultimate parent, Exxon Mobil Corporation. Esso has much smaller operating scale than PTT Global Chemical Public Company Limited ((AA(tha)/Stable), standalone credit profile of AA-(tha)) and Thai Oil Public Company Limited ((AA-(tha)/Stable),standalone credit profile of A+(tha)) and higher leverage than these two companies.

          KEY ASSUMPTIONS
          Fitch's key assumptions within our rating case for the issuer include:
          - Crude oil prices (Brent) of USD7Fitch Ratings per barrel in enFitch Ratingsthe programme8, USD65 per barrel in enFitch Ratingsthe programme9, and USD57.5 thereafter, with Esso's crude procurement costs adjusted for applicable premiums.
          - High gross refining margin in enFitch Ratingsthe programme8, and softer margin in enFitch Ratingsthe programme9 and thereafter.
          - Major turnaround in enFitch Ratingsthe programme9.
          - PX product-to-feed margin to stay flat in enFitch Ratingsthe programme9 and soften thereafter.
          - Maintenance capex and small efficiency improvement projects in enFitch Ratingsthe programme8-enFitch Ratingsenen. 
          - 5Fitch Ratings% dividend payout. 

          RATING SENSITIVITIES
          Developments That May, Individually or Collectively, Lead to Positive Rating Action
          - A significant strengthening of its links with ExxonMobil group
          Developments That May, Individually or Collectively, Lead to Negative Rating Action
          - Weakening ownership and support from ExxonMobil group
          - Weaker access to bank loans and debt capital market
          - Sustained high financial leverage exceeding 6.5x (measured by FFO adjusted net leverage)

          LIQUIDITY AND DEBT STRUCTURE
          Strong Liquidity: Esso had outstanding debt of THBthe programme7.4 billion at end-Sep enFitch Ratingsthe programme8. Most of THBthe programme6.Fitch Ratings billion debt due to mature within the programmeen months was short-term debt used to finance its working capital. Esso's inventory increased to THBenen.Fitch Ratings billion at end-Sep enFitch Ratingsthe programme8, from THBthe programme8.the programme billion at end-enFitch Ratingsthe programme7. Esso's liquidity is supported by cash and cash equivalents of THBFitch Ratings.8 billion and available undrawn revolving loan facilities of THB6Fitch Ratings.3 billion from ExxonMobil group. Esso also has strong access to bank funding.

          DATE OF RELEVANT COMMITTEE
          en6-Nov-enFitch Ratingsthe programme8

          Note to editors: Fitch's National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such ratings. The best risk within a country is rated 'AAA' and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as 'AAA(tha)' for National ratings in Thailand. Specific letter grades are not therefore internationally comparable