Bangkok--17 Jun--Fitch Revises
Fitch Ratings (Thailand) Limited has revised Thoresen Thai Agencies Public Company Limited’s (TTA) Outlook to Negative from Stable. Its rating has been affirmed at National Long-term senior unsecured ‘BBB+(tha)’.
The Outlook revision reflects TTA’s weaker-than-expected performance for the first half of the financial year ending September 2011 leading to higher financial leverage (net debt to last 12 months (LTM) EBITDA) of 4.3x from 1.9x at FYE10. Although Fitch expects TTA’s core businesses to recover over the next 12-24 months, the recovery remains fragile, due to a weak operating environment for dry-bulk shipping and turnaround challenges of the offshore marine business, particularly with the new management. This could further dampen TTA’s financial performance, and delay de-leveraging.
During Q2FY11, TTA faced deteriorating freight rates and a reduction in vessel days due to its postponed purchase of second-hand vessels. In addition, it was unable to pass on to clients higher costs driven by rising oil prices, due to tonnage oversupply. Its offshore marine services did not, as expected, see a significant rise in the utilisation of sub-sea engineering vessels partly due to transition to the new management and partly due to the industry’s low season during January to March. For H1FY11, EBITDA fell 25.4% yoy to THB966m.
TTA’s liquidity is adequate, supported by cash and cash equivalent of THB4.3bn and undrawn committed facilities of USD683m at end-March 2011. Nevertheless, further weakening in its performance may worsen its liquidity position.
The rating is based on TTA’s long expertise and established position in the South-East Asian market in both dry-bulk shipping and off-shore marine services. The rating is also supported by TTA’s diversification into non-dry bulk shipping businesses as a buffer against the cyclical downturn in the shipping industry. For the past two years, the contribution from non-dry bulk shipping businesses has increased to more than 40% of TTA’s consolidated EBITDA, from 10%-15% previously.
The rating is constrained by the cyclical, volatile, and fragmented nature of the dry-bulk shipping industry. The outlook on freight rates remains weak over the next 12-18 months given oversupply risk in 2011-2012. While TTA’s more diversified business model helps reduce the cyclicality and uncertainty of cash flow in the long term, this comes at the expense of higher financial leverage.
The rating may be downgraded if there is no recovery in its core businesses, while continuing large capex and investment, over the next 12 months, leads to sustained high financial leverage of more than 3.0x, and/or if liquidity worsens with fixed charge coverage of less than 1.5x, or if there is any negative action from its bank lenders threatening its liquidity position. On the other hand, the Outlook may be revised to Stable if there is a significant improvement in its core businesses, especially in offshore services, over the next 12 months, resulting in a decline in financial leverage to below 3.0x.
Contacts:
Primary Analyst
Somruedee Chaiworarat
Associate Director
+66 2655 4762
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan,
Bangkok 10330, Thailand
Secondary Analyst
Lertchai Kochareonrattanakul
Senior Director
+66 2655 4760
Committee Chairperson
Vicky Melbourne
Senior Director
+612 8256 0325
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.
Additional information is available at www.fitchratings.com.