Bangkok--Jul 5--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed the ‘BBB+(tha)’ Long-term National ratings of the two tranches of Vanachai Group Public Company Limited’s (“VNG”) Secured Debentures No.1/2002 due 2005 and No.1/2003 due 2008. The ratings reflect VNG’s creditworthiness and the value of the collateral. The debentures No.1/2002 are secured by assets of VNG and its wholly-owned subsidiary — Particle Planner Company Limited - while the debentures No.1/2003 are secured by assets of VNG’s wholly-owned subsidiary Vanachai Panel Industries Company Limited.
The ratings of VNG factor in its leading market share in domestic market, high level of production integration via the production of glue and forward expansion into value-added products. The company has also been able to demonstrate a relatively stable financial profile after 1999. The ratings take into account concerns on declining trend of margin over the past two years as a result of high raw material costs and in-land transportation rates. Rising oil prices and the government’s policy to remove the diesel price subsidy are likely to add more pressure on margins. Prolonged high oil prices are also weakening the outlook for economic growth, which could in turn undermine demand both domestically and regionally, while a large increase in new particle board (“PB”) supply may also lower product prices.
VNG’s key revenue drivers for 2005 should derive from the full year contribution of the PB line and new value-added products. Driven by larger sales volume, VNG is expected to register strong sales growth in 2005, although EBITDA level is likely to be flat year-on-year as margins may decline. Fitch expects margins to be impacted by the weakening in PB prices as well as rising in-land transportation rates. Nonetheless, strong EBITDA growth is expected in 2007 following the commencement of the new medium density fibreboard (“MDF”) line in late 2006.
Given the new investments, VNG’s net debt is expected to increase in 2005/06. The full year contribution from the PB line, however, should allow VNG to keep its net debt to EBITDA ratio at around 2.5x-2.8x and net debt to funds flow from operation ratio at around 3.0x-3.5x in 2005/06. Assuming no further major expansions, these ratios are expected to strengthen to below 2.0x and 2.5x, respectively, in 2007.
VNG and its subsidiaries are Thailand’s major producers and distributors of MDF and PB, with total capacities of 270,000 cu.m./year and 900,000 cu.m./year, respectively. In 2004, domestic sales accounted for 48% of sales revenue, while export sales, mainly to Greater China and South Korea, contributed to the remainder. VNG is 58%-owned by the founding Sahavat and Jareonnawarat families.
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.
Fitch’s rating definitions are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies and relevant policies and procedures are also available from this site, at all times. This document will remain on the public site for seven days.
Contact: Orawan Karoonkornsakul, Wasant Polcharoen, Vincent Milton; Bangkok, Tel: +662 655 4755. End.