Phoenix Petroleum’s Proposed P1.50 Billion in Short-Term Commercial Papers Rated PRS 2 minus

Philippine Rating Services Corporation (PhilRatings) assigned an Issue Credit Rating of PRS 2 (minus) to Phoenix Petroleum Philippines, Inc.’s (Phoenix Petroleum) proposed short term commercial papers (STCPs) worth P1.5 billion. The total STCP amount rated by PhilRatings in relation to Phoenix Petroleum is now at P3.5 billion, having rated an earlier STCP issue amounting to P2.0 billion.

Obligations rated PRS 2 exhibit above average (strong) capability for payment of both interest and principal. This is normally evidenced by many characteristics of a PRS 1 rating but to a lesser degree. Earning trends and coverage ratios, while sound, will be more subject to variations. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is also maintained by the company. A plus or a minus sign can be added to further qualify an assigned rating.

The rating reflects the following key factors: Phoenix Petroleum’s business operations are able to generate substantial revenues, with profitability expected to improve going forward; its adequate liquidity and financial flexibility, and competent and experienced management team. Furthermore, Phoenix Petroleum’s network retail expansion is seen to support and enhance its market position.

PhilRatings’ ratings are based on available information and projections at the time that the rating review was performed. PhilRatings shall continuously monitor developments relating to Phoenix Petroleum and may change the rating at any time, should circumstances warrant a change.

Phoenix Petroleum is the biggest independent oil player in the Philippines.The company continued to lead with a 4% market share as of the first half of 2014. In addition, Phoenix Petroleum had a total of 412 service stations as of September 30, 2014, with 135 stations in Luzon, 56 in Visayas and 221 in Mindanao.

Given the decline in sales volume, coupled with the weakening of petroleum prices, net income, for the nine-month period ended September 30, 2014, was 7% lower than the P541.3 million recorded for the same period a year ago. The decline in volume, however, was tempered by increased efficiencies and savings particularly from more emphasis on sales to retail and commercial-direct-user customers in lieu of less profitable sales to distributors. Consequently, profit margins were likewise slightly better for the period ended September 30, 2014. Gross profit margin and net profit margin were at 9.4% (9M2013: 7.5%) and 1.9% (9M2013: 1.7%), respectively.

Although marginally lower compared to the end-2013 level, Phoenix’s liquidity position remained strong. As of end-September 2014, current ratio was at 1.21x, from 1.33x as of end-2013. Given positive cash flows generated from operations, operating cash flow to current debt ratio was better at 0.94x. Solvency ratio also improved to 1.49x, from 1.41x as of December 31, 2013.

Phoenix also has a significant amount of undrawn credit lines from various local and multinational financial institutions in the country which adds to its over-all financial flexibility.

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