Bangkok--24 Sep--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned The Siam Cement Public Company Limited’s (SCC; ‘A(tha)’/Stable/’F1(tha)’) issue of up to THB6.5bn unsecured and unsubordinated debentures No. 3/2012 due 2019 a National Long-Term rating of ‘A(tha)’. The proceeds will be used to fund future capex.
SCC’s ratings are underpinned by its well-diversified revenue sources from its chemical, cement, paper and building material businesses. SCC’s leading position in the domestic cement and paper businesses should support cash flow generation as the operating environment for chemicals remains difficult in 2012.
The down-cycle of the petrochemical industry has put profitability under pressure, causing net adjusted debt to last-12 month EBITDAR (including dividend from associates) to weaken to 3.8x at end-H112 from 3.1x at end-2011. However, Fitch expects its financial leverage to improve in 2013 on expected recovery of petrochemical margins and lower capex.
SCC’s ratings are constrained by its exposure to the cyclicality of the chemical and paper sectors. In addition, the company’s earnings are vulnerable to high energy prices. Large excess capacity of domestic cement also leads to occasional price competition which could erode SCC’s profitability. Limited pricing power in commodity cement, chemical and paper also temper SCC’s profitability, particularly during a down-cycle.
What Could Trigger A Rating Action?
Positive: Future developments that may, individually or collectively, lead to positive rating action include
-a significant increase in cash flow generated from regional operations
-large improvement in EBITDA margin
-net adjusted debt to EBITDAR (including dividend from associates) lower than 2.5x on a sustained basis
Negative: Future developments that may, individually or collectively, lead to negative rating action include
-a sustained EBITDA margin deterioration together with a decline in EBITDA
-a prolonged chemical downturn or aggressive acquisition which results in net adjusted debt to EBITDAR (including dividend from associates) over 3.5x on a sustained basis