(The following statement was released by the rating agency)
May 30 - Standard & Poor’s Ratings Services said today that it considers the proposed issue of perpetual subordinated capital debentures by PTT Exploration and Production Public Co. Ltd. (PTTEP; BBB+/Negative/--) to have “intermediate” equity content. This means that we would treat 50% of the principal amount of the notes as equity and the other 50% as debt in our calculation of financial ratios.
Issuance of the proposed notes does not affect the corporate credit rating on PTTEP.
The margin on the securities will step up by 25 basis points at year 10, and the issuer has the option to redeem at year 10 and later. PTTEP has the option to defer interest payments on these notes. PTTEP intends to replace redeemed or repurchased notes with an instrument that has similar or higher equity content than what’s assigned to these notes. These features are consistent with our intermediate equity credit assessment.
According to our criteria, our assessment of “intermediate” equity content will be valid for 10 years from the date of issuance. Thereafter, our assessment of the equity content will become “minimal,” which means we will treat the issue as 100% debt in our calculation of financial ratios. This is because there would be less than 20 years remaining until the effective maturity date of the debenture. We define this as the point when there is a material step-up in the coupon rate for the instrument.
Standard & Poor’s does not rate the proposed issue. According to our criteria on hybrid securities, “intermediate” equity instruments that are subordinated to senior obligations and include some form of payment deferral clause are typically rated up to three notches below our issuer rating. Our view is based on the recovery consideration in a liquidation scenario and the highlighted risk of payment deferral when compared with senior debt.
-- Unregulated Issuers’ Hybrid Instruments: Rating Methodology And Assessment Of Equity Content, published March 17, 2011
-- Hybrid Capital Issue Features: Update On Dividend Stoppers, Look-Backs, And Pushers, published Feb. 10, 2010
-- Hybrid Capital Handbook: September 2008 Edition, published Sept. 15, 2008