Bangkok--2 May--Fitch Ratings
Fitch Ratings (Thailand) has today downgraded the National Long-term debt ratings of Sahaviriya Steel Industries Plc’s (“SSI”) secured debentures to ‘BBB-(tha)’ (BBB minus(tha)) from ‘BBB(tha)’ and removed the Negative Watch on the ratings. At the same time, Fitch has withdrawn the ratings of SSI’s secured debentures, due to insufficient information disclosure to maintain the ratings.
The ratings downgrade is based on the substantial deterioration in the company’s financial position at end-2005, as a result of its worse-than-expected earnings performance and higher-than-expected working capital requirements, which have reduced its financial flexibility. Investors should note however that the rating action does not take into account SSI’s possible participation in its parent’s upstream iron smelting project, which could result in further pressure on its ratings.
In 2005, SSI’s EBITDA substantially dropped by 57% year-on-year to THB2.8 billion, due largely to its slower sales volume and declining metal spread margins. With a sharp rise in raw material stocks to accommodate its capacity expansion in Q105, together with its slower sales volume after the global steel price correction in H205, SSI’s average inventory days jumped sharply at end-2005. As this was mostly funded by its short-term debt, SSI’s net debt rose significantly to THB30.4bn at end-2005 (end-2004; THB11.7bn). SSI’s net debt to EBITDA ratio sharply increased to 11.0x at end-2005 (end-2004; 1.8x). Nonetheless, its liquidity is partly supported by the company’s cash balance of THB234 million and undrawn committed trade finance facilities of THB5.9bn at end-2005.
SSI is also exposed to operational risks including a high degree of volatility in global steel industry. Foreign exchange risks are also a concern given SSI’s substantial raw material slab imports, although this is partly hedged through some USD-linked revenue and the purchase of forward contracts.
SSI is Thailand’s first and largest producer of hot-rolled steel coils (“HRC”), used in various industries including manufacturing of automobiles, home appliances, cold-rolled steel, construction, gas cylinders and steel pipes. SSI’s total HRC capacity increased to 4.0 million tonnes per year (“t/y”) in 2005 (2004; 2.4m t/y). The company is part of the Sahaviriya Group, which currently holds a c.47% stake in the company.
Contact: Wasant Polcharoen, Orawan Karoonkornsakul, 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.
Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.