Bangkok--13 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned The Siam Cement Public Company Limited’s (SCC; A(tha)/Stable/F1(tha)) new unsecured and unsubordinated debentures No. 2/2013 due 2017 of up to THB20bn a National Long-Term Rating of ‘A(tha)’. The proceeds will be used to refinance debt and fund future capex.
The notes are rated at the same level as SCC’s National Long-Term Rating as they constitute direct, unsecured, unconditional and unsubordinated obligations of the company.
Key Rating Drivers
Business diversification: SCC’s ratings reflect its well-diversified business which helps support cash flow generation, particularly during the difficult operating period of its chemical unit in the past two years. Increased earnings in cement and packaging paper businesses are likely to help reduce the impact from the cyclicality of chemical business in the medium term.
Leading market positions: SCC’s major position in each of its core businesses — chemical, cement and building materials, and paper — gives it a competitive advantage. Fitch expects the company to maintain its leading market share in these sectors in the next five years.
Profit margins to improve: SCC’s EBITDA margin is likely to improve in 2013 from the previous year, helped by expected improvement in chemical EBITDA margin and higher earnings contribution from the cement and building materials business.
High financial leverage: Fitch expects SCC’s net adjusted debt/EBITDAR, including dividend from associates, to remain high in 2013 due to high capex. SCC’s financial leverage is likely to be around 3.25x-3.5x in 2013 and 2014 (2012: 3.7x).
Cyclicality a constraint: Factors constraining SCC’s ratings are its exposure to the cyclical chemical business, lack of pricing power due to the commodity nature of most of its products, and its earning sensitivity to energy prices.
Rating Sensitivities
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
-a significant increase in cash flow generation from regional operations
-large improvement in EBITDA margin
-net adjusted net/EBITDAR (including dividend from associates) of less 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/EBITDAR (including dividend from associates) rising above 3.5x on a sustained basis