Bangkok--4 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed the ‘BBB(tha)’ National Long-term ratings of Canadoil Asia Limited’s (“CASIA”) outstanding secured debentures, amounting to THB1.0 billion, due March 2008 and May 2010, and the ‘F3(tha)’ National Short-term rating of its THB1.0bn short-term bills of exchange programme. The Outlook on the ratings is Stable. The secured ratings reflect CASIA’s creditworthiness, which is enhanced by mortgages over land, building and machinery and negative pledge of other assets except for normal trading activities.
CASIA’s stand-alone creditworthiness is based on the company’s strong presence in Asia via its parent group’s long track-record and global customer base. Despite beginning operations only recently in 2002, CASIA has established a strong reputation with all major end-users in Asia for high quality standards, controls and timely delivery. Sales and earnings have grown rapidly and earnings prospects remain robust given its current strong sales backlogs and the positive long-term outlook for the energy sector. The ratings also reflect CASIA’s cost competitiveness and its limited exposure to the volatility of raw material prices given the nature of its business, which allows a pass through of incremental costs to end buyers.
On the other hand, the ratings take into account CASIA’s exposure to the cyclical petrochemical and energy sectors, as well as its high financial leverage and short-term borrowings. The ratings also reflect the complex family-owned group structure and its exposure to related companies, which poses some risks. Future financial support to related companies could affect CASIA’s creditworthiness. A lower level of reporting and accounting requirements for private companies also make it more difficult to effectively monitor the performance of the company.
In 2005, CASIA reported strong improvement in its earnings performance. EBITDAR jumped sharply 72% year-on-year, thanks to strong sales volume growth and higher average selling prices. Nonetheless, CASIA’s total debt increased significantly to THB2.4bn at end-2005 from THB1.1bn at end-2004, due to its planned capacity expansion, higher working capital requirements and some prepaid investment for the parent group. CASIA’s net adjusted debt to EBITDAR increased sharply to 7.4x at end-2005 from 5.9x at end-2004. Short-term debt also remains at a high 58% of its debt portfolio, posing refinancing risk, particularly when leverage is high. CASIA’s liquidity is supported by its undrawn trade facilities of THB500m and cash balance of THB66m at end-2005. The repayment of prepaid investment by the parent group in June 2006, a minimal capex plan and expected stronger EBITDAR performance should result in an improvement in CASIA’s financial leverage to a more moderate level by end-2006.
The Stable Outlook reflects the expectation that CASIA will continue to generate solid earnings performance and lower its leverage in light of the positive long-term outlook for the energy sector. Nonetheless, CASIA’s failure to reduce and maintain its net debt to EBITDAR to below 5.5x by 2007 could negatively affect the ratings.
Established in 1999, CASIA is a manufacturer of heavy-duty large-diameter butt-weld pipe fittings, used mainly for oil and gas, petrochemicals, power and civil engineering industries. CASIA is a member of Canadian-based Canadoil Group, one of the few major global providers of piping solutions with an extensive global sales network. CASIA operates as a production base and a distribution centre for Canadoil Group, with its main focus on the Asian market. CASIA is a private company, indirectly owned by the Sozzi family.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such 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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