Bangkok--13 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned The Siam Cement Public Company Limited's (SCC) new THB10bn unsecured and unsubordinated debentures No. 2/2014 due 2018 a National Long-Term Rating of 'A(tha)'.
The notes are rated at the same level as SCC's National Long-Term Rating (A(tha)/Stable/F1(tha)) as they constitute direct, unsecured, unconditional and unsubordinated obligations of the company. The proceeds will be used to refinance debt and fund future capex.
Key Rating Drivers
Business Diversification: SCC's ratings reflect its well-diversified cash flow generation in its core businesses of chemicals, cement and building materials, and paper. The recovery of its petrochemical business and increasing international operations should help to support the company’s cash flow in 2014.
Leading Market Positions: SCC's leading position in Thailand and Southeast Asia in each of its core businesses, extensive and established distribution channels, and strong branding in the domestic market strengthen the company’s competitive advantage. Fitch expects SCC tomaintain its leading market share in these sectors over the next five years.
Earnings to Improve: Fitch expects SCC’s operating cash flow to improve in 2014, supported by the recovery in the chemical business. Its acquisitions of four building material companies and three paper packaging companies in 2013 will also support an increase in operating cash flows.
Continued High Capex: Fitch expects SCC’s capex to remain high 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 (12 months ended 2Q14: 3.0x), and trend below 3.0.x thereafter as it reaps the benefits of expansion and as its existing operations continue to grow.
Cyclicality: Factors constraining SCC's ratings include its exposure to the cyclicality of its chemical and paper businesses, a lack of pricing power given that the majority of its products are commodities, as well as 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 (6M14: 12.5%)
-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 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