Bangkok--Feb 24--Fitch Ratings
Fitch Ratings (Thailand) Limited has today upgraded the National Long-term ratings on the senior unsecured debt and outstanding senior unsecured debentures of Thailand’s largest industrial conglomerate, The Siam Cement Plc. (“SCC”), and its subsidiary, The Siam Pulp and Paper Plc. (“SPP”), to ‘A+(tha)’ with a Stable Outlook, from ‘A(tha)’. Fitch also affirmed both companies’ National Short-term ratings at ‘F1(tha)’. At the same time, Fitch assigned SCC’s new unsecured unsubordinated debentures No.1/2005 amounting up to THB10 billion due 2009 a similar rating of ‘A+(tha)’.
The ratings upgrade reflects the strengthening in SCC’s financial position, strong recovery in core earnings, high level of revenue diversification as well as faster than expected debt reduction and moderate long-term net debt to EBITDA target. SCC’s consolidated net debt to EBITDA ratio stood at 2.1x at end-2004, improving from 3.5x at end-2003 and 4.6x at end-2002. Including dividends from associates, SCC’s consolidated net debt to EBITDA ratio was below 2.0x at end-2004, ahead of its schedule, which aimed for 2.0x by end-2005. SPP has a similar financial strength although it has a less diversified revenue base and the earnings outlook for the pulp and paper business is weaker. Nonetheless, the strong support and control by SCC coupled with SPP’s position as one of its parent’s core businesses provide uplift to SPP’s credit fundamentals.
At present, the group’s annual capex is projected at THB8bn-10bn in 2005. In the medium term, potential investments include a new naphtha cracker, a new printing and writing machine, and packaging plants. SCC also aims to expand its core businesses regionally. While this may present some financial and business risks, these should be mitigated by the board’s and management’s strong track record as well as SCC’s commitment to maintaining financial leverage within a moderate range.
SCC reported very strong earnings in 2004, on the back of robust performance of its petrochemicals, cement and building products businesses.
Earnings growth last year was also fueled by higher contributions of equity income from its associates and a further reduction in interest and financing costs. Strong domestic demand for cement and building products driven by the government’s infrastructure projects and growth in the property sector should continue to support the performance of these divisions over the next two years.
Meanwhile, the operating environment of the petrochemical division still appears strong in 2005, although the 35-day maintenance shutdown of its cracker unit will affect volumes, furthermore, the medium term cyclical outlook may be less favourable. Contribution from the paper and packaging business is likely to be relatively flat in 2005 with some improvements expected in 2006 and beyond once Thai Cane Paper Plc. and United Pulp and Paper complete their coal-fired boiler projects.
Contact: Orawan Karoonkornsakul,
Lertchai Kochareonrattanakul,
Wasant Polcharoen, Vincent Milton; Bangkok,
Tel: +662 655 4755.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. End.