Fitch Ratings Expect Thai Corp. to Improve in 2021, but Tourism Is on Slow Recovery Path

Fitch Ratings, a widely-known credit ratings, commentary and research provider, said that the negative rating pressure on Thai corporates rated will ease in 2021 as downside risks reduce following the roll-out of vaccination and the recovery of economic activity.

 

For the 2021 outlook, the prospects for Thai corporates should improve, particularly the sectors that were heavily hit by the pandemic, such as oil, gas and petrochemicals. However, the pace of recovery for tourism-related sectors such as hotel, non-food retail and aviation will be slow amid prolonged restrictions on movement and new social distancing norms. An increasing focus on sustainability is shaping longer-term structural trends that will affect many of these sectors beyond the recovery.

 

Ms. Somruedee Chaiworarat, Director of Corporate Ratings at Fitch Ratings Thailand, said aggregate EBITDA for Fitch-rated Thai corporate issuers should increase in 2021, despite higher operating costs. Financial leverage should improve, although the deleveraging pace of some companies may be slow due to higher investment and dividend payments.

 

In 2021, the outlook for oil & gas and petrochemical sectors will remain negative, as leverage will remain high despite a recovery in earnings. Telcos should have enough rating headroom to absorb an increase in spectrum payments and 5G investment. In comparison, the outlook for the food retail sector will remain stable as Fitch expects leverage to improve in 2021 as earnings rebound. Fitch expects the outlook for the building material and power & utilities sectors to be stable in the coming years.

 

Mr. Mervyn Tang, Senior Director of Sustainable Finance at Fitch Ratings, said that sustainability considerations are increasingly being incorporated into policies, corporate governance frameworks, and the lending and investment decisions of financial institutions. This will increase the influence of ESG considerations on company strategy, financing and operating environments in 2021.

 

ESG reporting requirements are expected to spur financial institutions to enhance ESG due diligence and exclusionary policies to cover a broader set of ESG issues and entities, further affecting financing conditions for companies. Fitch expects the Securities and Exchange Commission of Thailand’s proposed rules to support sustainability-linked bonds will increase the number of issuers able to issue ESG-related bonds. Issuers of sustainability-linked bonds come from many more sectors than green bond issuers in global markets as use of proceeds from sustainability-linked bonds do not need to be tied to specific eligible activities.

 

The economic consequences of net-zero emissions pledges will depend on the policy path taken to achieve net-zero, with the role of natural gas in the low carbon transition a particularly important factor in the Asia-Pacific. The growing interest in sustainability is sparking debate on the duties of boards to monitor such issues in supply chains. This is particularly relevant for the ASEAN region, which is a key part of global supply chains.