Bangkok--Feb 23--Fitch Ratings (Thailand)
Fitch Ratings (Thailand) Limited has today affirmed the National Senior Unsecured rating of The Siam Cement Plc. (“SCC”), Thailand’s largest industrial conglomerate, and on its subsidiary, The Siam Pulp and Paper Plc. (“SPP”), at ‘A+(tha)’ with a Stable Outlook. Fitch also affirmed both companies’ National Short-term ratings at ‘F1(tha)’. At the same time, Fitch affirmed the A+(tha) ratings of SCC’s and SPP’s outstanding senior unsecured debentures (the latter are guaranteed by SCC), and assigned similar ratings of ‘A+(tha)’ to SCC’s upcoming three series (No.1/2006, No.2/2006, No.3/2006) of senior unsecured debentures, altogether amounting up to THB20 billion. The new debentures will be used to refinance the company’s maturing debentures.
The ratings of SCC are based on the company’s high level of revenue diversification, its leading position and strong brand recognition in the domestic market as well as its relatively strong financial position with a moderate financial leverage target. SCC’s debt serviceability and financial flexibility is further supported by its strong access to the local debt capital market. Nonetheless, Fitch notes that high energy costs, large excess supply and the competitive operating environment in all its core businesses remain key credit concerns. In light of its large investment plans, SCC’s financial leverage is also likely to increase from its current level, although the company should be able to maintain its net debt to EBITDA level at 2.0x-2.5x. The group announced approximately THB75bn worth of new investments in 2005. Other credit concerns include high execution risks as a result of new investments and exposure to contingent liabilities.
For SPP, its credit fundamentals take into account the company’s strengths in the domestic market, its high level of production integration and relatively strong financial position, as well as the full control and support from SCC. On the other hand, SPP is exposed to less diversified revenue base, intense competition in the pulp and paper industry and declining margin. The company also has large investment plans, which is likely to result in an increase in its financial leverage, although this is projected to remain within the group’s internal target.
After the record high earnings in 2004, SCC reported 12% yoy declines in both consolidated EBITDA (pre-dividend income) and net income in 2005 to THB43bn and THB32bn, respectively. Including dividends from associates, the company’s EBITDA was THB50bn (down 6% yoy). While overall sales growth of the group was relatively strong, its operating performance was negatively affected by weakening margins in all core divisions mainly as a result of narrowing petrochemicals spreads, the 35-day maintenance shut-down of the naphtha cracker and high energy cost. As a result, petrochemicals division reported the largest fall in EBITDA while EBITDA for cement division was flat as lower margin were compensated by solid sales growth. Meanwhile, its paper and packaging division showed a marginal drop in EBITDA. Besides weaker operating performance, the decline in SCC’s consolidated net income was also a result of higher tax expense due to the expiry of some tax benefits.
SCC’s consolidated net debt level remained at THB101bn at end-2005. Its strong operating cash flow was offset by an increase in new investments and higher dividend payment. The group’s net debt to EBITDA ratio increased marginally to 2.3x at end-2005. Including dividends from associates, SCC’s consolidated net debt/EBITDA ratio remained stable at 2x. Its interest coverage ratio was solid at 9x in 2005. Despite high capex and dividend payment as well as relatively less favorable earnings outlook, SCC should be able to maintain its financial leverage in line with its long-term target due to solid EBITDA and dividends received from associates.
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.
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