Bangkok--12 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned The Siam Cement Public Company Limited’s (SCC; A(tha)/Stable/F1(tha)) new THB15bn unsecured debentures due 2018 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 sources of revenue from its chemical, cement and building materials, and paper businesses. This diversification supported cash flow generation when it chemical business in 2011-2012 faced an industry-wide downturn.
Leading Market Positions: SCC’s leading positions in Thailand and Southeast Asia in each of its core businesses - chemical, cement and building materials, and paper - give it a competitive advantage. The company should maintain its leading market share in these sectors over the next five years.
Rising Capex: Fitch expects SCC’s capex to increase in 2014-2015 as it expands its businesses, particularly in Southeast Asia. Fitch expects SCC’s net adjusted debt/EBITDAR, including dividends from associates, to be within 3.0x-3.5x in 2014 (9M13: 3.0x) due to the higher capex, and trend below 3.0x thereafter as it reaps the benefits of expansion and as its existing operations continued to grow.
Earnings to Improve: Fitch expects SCC’s operating cash flows to improve in 2014, supported by continuing growth in its cement and building materials businesses and recovery in the chemical business. The increase in operating cash flows will be driven by organic growth as well as SCC’s recent acquisitions of four building material companies and three paper packaging companies. Fitch expects the margins on SCC’s polymer products to remain healthy in 2014.
Constrained by Cyclicality: The major factors constraining SCC’s ratings are its exposure to the cyclicality of the chemical and paper businesses, a lack of pricing power because the majority of its products are commodities, and the sensitivity of its earnings 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 (9M13: 12%)
- net adjusted debt/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 downturn in the chemical business or aggressive acquisition activity resulting in a net adjusted debt/EBITDAR (including dividends from associates) of over 3.5x