Bangkok--Aug 26--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a Long-term National rating of ‘A+(tha)’ to The Siam Cement Plc’s (“SCC”) unsecured unsubordinated debentures No.2/2005 of up to THB10 billion due 2009. The newly-issued debentures will be used to refinance SCC’s THB7.5bn debentures maturing in October 2005 and fund its new investments.
The rating reflects SCC’s high level of revenue diversification with cement, petrochemicals, paper and building products as core businesses. Due to its established brand recognition and extensive distribution network, the company has leading domestic market share in most of its core businesses. The rating is also based on SCC’s relatively solid financial position as well as its moderate long-term net debt to EBITDA target of 2.0x-2.5x.
SCC’s financial strength has substantially improved over the past three years with its consolidated net debt to last-twelve-month EBITDA ratio at around 2.0x at end-2004 and end-1H05, 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 slightly below 2.0x at end-2004 and end-1H05. Meanwhile, strong cash flow from operations and moderate capex have allowed the company to report positive free cash flow over the past three to four years. While the anticipated increase in future capex may present some financial and business risks, these risks should be mitigated by the management’s strong track record as well as SCC’s commitment to maintaining financial leverage within a moderate range.
The rating also takes into consideration the domestic oversupply and highly competitive environment of SCC’s core businesses. Meanwhile, the persistently high oil price has started to put pressure on SCC’s profitability and may weaken demand for some of its products. The company’s domestic and regional expansions may also result in an increase in its debt level, especially if it decides to proceed with large investments like a new naphtha cracker or a new printing and writing paper machine, both of which are now undergoing feasibility studies. Other key credit concerns include SCC’s relatively high contingent liabilities of THB9.8bn (which are likely to increase in 3Q05 as a result of the guarantee provided to its joint venture in Iran) as well as the drought which may affect its petrochemical operations, although SCC has sought alternative water sources as a back-up to mitigate the impact.
SCC reported strong year-on-year growth in net income of 24% to THB18.7bn in 1H05 mainly on the back of robust performance of its petrochemicals businesses, a further reduction in interest and financial costs as well as higher dividend income from related companies. Meanwhile, the rising energy costs resulted in a relatively flat 1H05 EBITDA at its cement and paper divisions despite higher revenues. While EBITDA increased 16% yoy to THB24.8bn in H105, Fitch notes that the full year EBITDA in 2005 is likely to be flat on the back of higher energy costs as well as the 35-day shutdown of its cracker in 2H05 for major maintenance.
At end-H105, 43% of SCC’s total consolidated debt of THB104.5bn was short term — about 70% of which was maturing debentures. Non-bank debt, largely domestic debentures, accounted for almost 80% of its total debt. SCC intends to continue to use the domestic bond market as one of its key funding sources.
Contact: Orawan Karoonkornsakul, 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.
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