Bangkok--22 Dec--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Canadoil Asia Limited's (CASIA) THB1.0bn short-term bills of exchange (B/E) programme's National Short-term rating at 'F3(tha)'. The maturity of each series of the B/E programme will not exceed 270 days.
The rating reflects CASIA's well-established position in the heavy-duty, large-diameter pipe fitting market, its cost competitiveness, expertise and high product quality. CASIA has established a strong foothold in the Asia Pacific region, thanks to the long track record and global customer base of its parent group, Canadoil Group (CG). The rating also reflects the company's solid ability to pass on incremental costs to end-users, given the nature of its business (most of its products are made-to-order).
Fitch notes that demand for CASIA's heavy-duty, large-diameter pipe fittings products is likely to recover in 2011, thanks to the recovery of oil prices. Also, an increase in crude oil and/or natural gas self-sufficiency and diversification for many regional economies, and the increasing development of more technically difficult reserves and/or non-conventional fields should provide support to demand in the medium term.
CASIA's financial leverage, measured against operating cash flow, has remained high. Its operating cash flow in 2009 was mainly used to finance advances to related companies, and as such its net debt was stable, with adjusted net debt to operating EBITDAR increasing slightly to 5.6x. Fitch expects CASIA to deleverage, but at a slower pace than previously expected. Its adjusted net debt to operating EBITDAR is likely to stay between 4.25x-5.25x during 2010-2011, and decline to about 3.5x in 2012.
Related-company exposure is a concern. There is a possibility that CASIA would continue to support related companies, if required, which could affect its financials. Operational risks include its exposure to the cyclical petrochemicals and energy sectors, as well as CASIA's foreign exchange exposure. About half its debt is denominated in Thai baht, while most of its earnings are in foreign currency, mainly the US Dollar. The agency notes that less stringent reporting and accounting requirements for private companies make it more difficult to effectively monitor the company's performance.
Negative rating actions include worse-than-expected liquidity management or a failure to de-leverage, or if CASIA has to further financially support its related companies (which would place more pressure on its financial and liquidity positions). Positive rating actions include better-than-expected operating performance, and sustained declines in its adjusted net debt to operating EBITDAR to below 3.0x.