Bangkok--12 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned The Siam Cement Public Company Limited's (SCC) new THB25bn unsecured and unsubordinated debenture No. 1/2559 due 2020, a National Long-Term Rating of 'A(tha)'.
The proceeds will be used to refinance maturing debentures and fund future capex and investments. 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.
Key Rating Drivers
Improved Financial Profile: In 2015, high product-to-feed margins of its chemicals business led to higher EBITDA margin and financial leverage also significantly improved and Fitch Ratings expects these to remain healthy over 2016-2017. A strong polyethylene spread should continue to support SCC's performance in 2016, while a recovery in domestic demand for cement and building materials products and a ramp-up of SCC's new regional cement capacities, should be a key growth driver in 2017.
Fitch expects SCC's EBITDA margin to remain above 15% in 2016-2017 from 11% in 2014 while keeping its FFO net adjusted leverage below 3x (2.8x-4.0x in 2011-2014). The improved leverage should provide more headroom for the company to pursue its regional expansion strategies.
Business Diversification: The ratings are supported by well-diversified sources of revenue in its core businesses – CBM, chemicals, and packaging. There were track records of the diversification benefits in smoothing out cash flow over the past five years, e.g. when CBM growth reduced the pressure from a chemicals trough in 2012 or chemicals helped boost overall EBTDAR from a weak CBM performance in 2015. The continued focus on regional expansion should further benefit SCC's business profile over the long term.
Market Leader: SCC, as one of Thailand's largest conglomerates, holds the largest capacity and market share of cement, ceramic tiles, downstream chemicals and packaging paper in Thailand and some south-east Asian countries. Fitch expects SCC to maintain its leading market positions in each of its core businesses over the next five years.
High Capex Remains: To pursue its regional expansion strategies mainly in south-east Asia, Fitch expects SCC to keep its capex high at about THB50bn–60bn per year over 2016-2017, despite the delayed investment of its largest petrochemical complex in Vietnam.
Cyclicality Hinders Ratings: The ratings also factor in SCC's inherent exposure to the cyclicality of the chemicals and packaging businesses, and a lack of pricing power due to the bulk of its products being commodities.
KEY ASSUMPTIONS
Fitch's key assumptions within our rating case for the issuer include:
- Operating EBITDA to slightly increase in 2016, driven by strong chemicals business;
- Operating EBITDA of CBM business to be maintained or slightly drop;
- Capex of THB50bn- THB60bn per year in 2016-2017; and
- Dividend payout ratio of 40%-50%.
RATING SENSITIVITIES
Positive: Future developments that may, individually or collectively, lead to positive rating action include:
- a large increase in cash flow generation from regional operations
- FFO net adjusted leverage sustained at below 2.75x. (2015: 2.47x expected based on preliminary results)
Negative: Future developments that may, individually or collectively, lead to negative rating action include:
- a weakening of the company's business and financial profile resulting in FFO net adjusted leverage sustained at above 3.75x.