Bangkok--Jun 9--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned final National Long-term ratings of ‘BBB(tha)’ to Canadoil Asia Limited’s (“CASIA”) THB300 million secured debentures due March 2008 and THB700m secured debentures due May 2010. The ratings reflect CASIA’s creditworthiness, which is enhanced by mortgages over land, building and machinery, and negative pledge of other assets except for normal trading activities. CASIA pledges to maintain a minimum collateral value-to-loan ratio of 120%. CASIA’s creditworthiness is based on the company’s strong market niche in manufacturing heavy-duty large-diameter pipe fittings in Asia - as a result of its parent group’s long track-record and global customer base - its cost competitiveness and its high product quality. The ratings also take into account its start-up operation phase in Thailand, exposure to the cyclicality of the petrochemical and energy sectors, its relatively high leverage as well as the family-owned structure of the company.
Despite having only been operating in Thailand since 2002, CASIA has established its name on all major users’ lists in Asia as a result of its parent, Canadoil Group’s, reputation and its high quality standards and controls. CASIA’s product quality complies with several international standards. Sales and earnings have grown rapidly and the outlook remains generally robust. CASIA’s locational advantages from being based in Asia, competitive conversion costs due to relatively low labour costs, as well as tax incentives granted by Thailand’s Board of Investment, also assist its competitiveness. As most of its products are sold to projects which normally require specification and lead time for production, CASIA is generally able to pass through increasing raw materials costs to end buyers, and, therefore, minimise its exposure to steel price rises. In addition, the positive long-term outlook for the energy sector should support the demand for piping.
The ratings also take into account its exposure to cyclical petrochemical and energy sectors, as demand for pipe fittings is mainly driven by new projects from these sectors, as well as its relatively high leverage and short-term borrowing. Although demand should underpin capacity expansion, the expansion will result in the company’s leverage remaining relatively high over the next two years. In addition, the high level of short term borrowing, if sustained, could lead the company to face liquidity constraints. The rating also reflects its exposure to related companies, which poses some risks. There is a possibility that CASIA would further support related companies if needed, which may impact on CASIA’s creditworthiness. A lower level of reporting and accounting requirements for private companies also makes it more difficult to effectively monitor the performance of the company.
Due to its start-up phase of operation and rapid expansion, CASIA’s total debt increased from THB45m in 2000 to THB1.1bn at end 2004, 64% of which was short-term debt. CASIA had free cash balances of THB3.8m and undrawn trade facilities of USD17m (THB663m), which should partly mitigate the company’s refinancing risk. The repayment of long-term loans will not start until 2007 (2008 after refinancing bank loans with the debentures). Although declining, the company’s leverage remains relatively high with net debt to EBITDA of 5.9x for 2004 (2003: 6.5x). Given the planned capital expenditure for 2005, CASIA’s net debt will increase to about THB1.5bn at end-2005. Nevertheless, the increase in debt should be mitigated by expected EBITDA growth, and therefore its net debt to EBITDA ratio should fall slightly year-on-year and decline moderately in 2006.
Established in 1999, CASIA is a manufacturer of heavy-duty large-diameter butt-weld pipe fittings, used mainly for oil and gas, petrochemicals, power and civil engineering industries. CASIA is a member of Canadian-based Canadoil Group, one of a few major global providers of piping solutions with an extensive global sales network. CASIA operates as a production base and a distribution centre for Canadoil Group, with its main focus on the Asian market. CASIA is a privately-owned company of the Sozzi family, mostly through Canadoil Forge AG (the family’s holding trust).
CONTACT:
Lertchai Kochareonrattanakul Tel: +662 655 4760;
Wasant Polcharoen +655 4763;
Vincent Milton +662 655 4759.
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.
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