Bangkok--27 Mar--Fitch Ratings
Fitch Ratings (Thailand) Limited has affirmed Thoresen Thai Agencies Public Company Limited’s (TTA) National Long-Term rating at ‘BBB(tha)’ with Stable Outlook. Simultaneously, the agency has affirmed the company’s National senior unsecured rating at ‘BBB-(tha)’.
Key Rating Drivers
Improving Financial Leverage: TTA’s financial leverage has strengthened following rights issues that increased capital by THB4bn each in March 2013 and March 2014. This will be used to support large capex of about THB27bn (USD832m) over the three years starting in the financial year ending 30 September 2014. With operating cash flow likely to improve due to a recovery in dry-bulk shipping and the company’s larger dry-bulk fleet, Fitch expects the company’s net debt to EBITDA to remain below 3.0x in FY14-FY15 (1.8x as at end-2013). In FY16, when the final payments for new rigs and a subsea engineering vessel are due, net debt to EBITDA is likely to be about 4.0x while funds from operations (FFO) net adjusted leverage is expected to be at 5.25x-5.5x in FY16.
Diversified Portfolio: Although TTA core business is dry bulk shipping, the company has a diversified portfolio that includes offshore marine services, which provide recurring cash flows. The successful turnaround of TTA’s offshore marine services business since FY12 has made this segment a major EBITDA contributor, and it helped to make up for lower contribution from the dry-bulk shipping business, which is going through a cyclical trough. As oil and gas companies are likely to continue investing in exploration and production, Fitch expects the offshore marine services business to account for 37%-47% of the company’s proportionately consolidated EBITDA over FY14-FY15. This will fall from 57%-58% in FY13 as the dry-bulk shipping business is expected to pick up.
Highly Cyclical Dry-bulk Shipping: The rating is constrained by the cyclical, volatile and fragmented nature of dry-bulk shipping, which has been in a downturn since late 2008. The oversupply situation and pressure on freight rates have, nonetheless, eased since late 2013. Fitch expects some upturn in freight rates over the next 12 months, reflecting an improved demand-supply balance.
Expertise and Established Position: The rating takes into account TTA’s track record in the south-east Asian market in both dry-bulk shipping and offshore marine services. The company has also been successful in expanding into other regions, e.g. the Middle East for offshore services and the Atlantic routes for dry-bulk shipping. This will help enhance earnings from more profitable routes while reducing the seasonal effects in specific routes and/or regions.
Weak Unsecured Debt Recovery: The senior unsecured debt rating is notched one level down from TTA’s National Long-term Rating to reflect the weaker recovery potential of the company’s unsecured debt, compared to that of secured debt, which accounts for about 64% of the company’s total debt. Unencumbered assets (vessels and rigs)/unsecured debt was lower than 1.0x at end-December 2013. Should TTA continue with a decentralised financing policy, its National Long-Term rating and its senior unsecured rating could converge given the increase in the level of structural subordination of TTA’s creditors to the external creditors lending directly to its operating subsidiaries.
Rating Sensitivities
Positive: Future developments that may, individually or collectively, lead to positive rating
action include:
- Solid recovery in dry-bulk shipping industry and an improvement in cash flow generation from its core businesses, resulting in a net debt/EBITDA to below 4.0x on a sustained basis
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- Aggressive expansion or investment funded by debt, leading to net debt/EBITDA of more than 6.0x on a sustained basis;
- A deterioration in its liquidity position with FFO fixed charge coverage lower than 1.5x (2.0x as at end-2013) or negative action from bank lenders
Contacts:
Primary Analyst
Somruedee Chaiworarat
Director
+66 2108 0160
Fitch Ratings (Thailand) Limited
Level 17, Park Ventures, 57 Wireless Road, Lumpini, Patumwan,
Bangkok 10330
Secondary Analyst
Lertchai Kochareonrattanakul
Senior Director
+66 2108 0158
Committee Chairperson
Vicky Melbourne
Senior Director
+612 8256 0325