Bangkok--27 Mar--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned Thoresen Thai Agencies Public Company Limited (TTA) a National Long-Term rating of ‘BBB(tha)’ with Stable Outlook. Simultaneously, the agency has downgraded its National senior unsecured rating to ‘BBB-(tha)’ from ‘BBB(tha)’.
The downgrade of TTA’s senior unsecured rating reflects weaker recovery potential of unsecured debt. This follows a slower-than-expected reduction in secured debt as a share of total assets and EBITDA after having increased during the past three years. TTA’s unencumbered assets (vessels and rigs)/unsecured debt were lower than 2.0x at end-2012.
Key Rating Drivers
High financial leverage: Fitch expects financial leverage, measured by net debt/EBITDA, to remain high in a 4.0x-5.0x range over the next two to three years. Its total expected capex over 2013-2015 is THB18bn-THB19bn, mainly for fleet expansion and rig replacement. TTA plans to acquire low-priced assets in anticipation of an upturn of dry-bulk shipping in 2014. The capex will be partially financed by proceeds from a recent capital-raising of about THB4bn.
Cyclicality: Dry-bulk shipping business is cyclical, volatile and fragmented. Dry-bulk shipping has suffered a downturn since late 2008. Downward pressure on freight rates from an oversupply should ease in H213. Consequently, an upturn on freight rates may be seen in 2014.
Diversification: TTA’s diversification helps mitigate negative impact from the prolonged downturn in dry-bulk shipping. A successful turnaround in its offshore marine service business should make it a major EBITDA contributor of about 60%-70% in 2013-2014, while dry-bulk shipping gradually moves into an upswing. Over the long term, investments in coal and logistics businesses should create synergies with dry-bulk shipping and help reduce cyclicality and stabilise cash flow.
Expertise and established position: The ratings also take into account TTA’s long experience and established position in the south-east Asian market in both dry-bulk shipping and offshore marine services. The company is successful in expanding to other regions e.g. the Middle East for offshore services and Atlantic routes for dry-bulk shipping. This will help reduce seasonal effects of a specific route or region.
Rating Sensitivities
Positive: Future developments that may, individually or collectively, lead to positive rating
action include:
- Improving cash flow generation from core and new businesses, resulting in a decline in net debt/EBITDA to below 4.0x on a sustained basis
- Unencumbered assets (vessels and rigs)/unsecured debt of over 2.0x on a sustained basis, which would lead to an upgrade of the senior unsecured rating
Negative: Future developments that may, individually or collectively, lead to negative rating
action include:
- Aggressive expansion or investment via debt funding, leading to net debt/EBITDA of more than 6.0x on a sustained basis;
- A deterioration in its liquidity position with funds from operations FFO fixed charge coverage lower than 1.5x (end-2012: 2.1x) or negative action from bank lenders