Bangkok--Oct 12--Moody's
Moody's Investors Service has affirmed its B1 rating for the senior unsecured bonds issued by G Steel Public Company Limited (G Steel) following the completion of the issuance. At the same time, Moody's has affirmed its B1 corporate family rating for G Steel and removed these ratings from provisional status. The ratings outlook is stable.
Moody's notes that the senior unsecured notes have been downsized to
US$100 million from US$150 million. Such downsizing would result in a weaker liquidity profile as more cash will be utilized to fund the projected capex, assuming no additional external financing. Moody's expects a low cash buffer (estimated at below US$20 million) being retained as of FY 2007 but draws some comfort from the projected growth in cash flow after the completion of the de-bottlenecking program.
Moody's also understands that the capex will be made in progressive payments over the next two years.
The B1 rating reflects the key credit strengths of G Steel: 1) efficient
and highly automated modern steel plant which provides production flexibility; 2) the proximity of its steel operations to major consumption areas; 3) the company's solid market position as the second largest hot roll coil (HRC) producer in Thailand; 4) favorable government policies that translate into a protected domestic market with healthy demand growth trends; and 5) an improved financial leverage position as of end-FY04 which will somewhat weaken after the bond issuance.
On the other hand, the rating reflects the key credit challenges: 1) G
Steel has no ownership and no long-term supply contracts for its main raw material; 2) lack of long-term sales contracts; 3) the high cyclicality of the steel industry; 4) a single plant, and the lack of product diversification; 5) execution risk of the de-bottlenecking program; and 6) limited track record across the industry cycle and small capacity as compared to that of its global peers.
Upward rating pressure could emerge if the de-bottlenecking program
currently underway is executed as planned, and G Steel's operating profile strengthens with production volumes increasing as anticipated, while the company obtains a long-term contract for both its sales and raw materials supply. The key credit metrics that Moody's would consider for an upgrade include RCF/Adjusted Debt ratio above 20%-25% across the cycle.
Downward rating pressure could arise if the current production growth
plan faces implementation problems, the company undertakes aggressive debt-funded capital investment plans beyond the proposed bond issue, or it excessively provides financial support to its shareholders over time.
The key credit metrics that Moody's would consider for a downgrade include RCF/Adjusted Debt ratio falls below 20% across the cycle.
G Steel Public Company Limited is a steel company headquartered in Bangkok, Thailand. The company produces HRC in different grades and gauges. For the year ending 31 December 2004, it generated sales revenue of THB 21.3 billion. G Steel is a stand-alone operating entity with no related group companies.
Hong Kong
Angela Choi
Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Hong Kong
Gary Lau
Senior Vice President
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121 End.