Bangkok--24 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National Long-term rating of ‘A+(tha)’ to The Siam Cement Plc’s (“SCC”) senior unsecured debentures No.4/2006, amounting to THB5.0 billion, due 2010. The proceeds from the new debentures will be used to refinance the group’s maturing debentures.
The rating is based on SCC’s high level of revenue diversification, its leading position and strong brand recognition in the domestic market, as well as its relatively strong cash flow generating capability and sound financial position. SCC’s debt serviceability and financial flexibility is further supported by its strong access to the local debt capital market. Nonetheless, the rating takes into account continued margin pressure due to rising energy costs, as well as the impact from large excess supply and competitive operating environment in all SCC’s core businesses. In light of its large investment plans, SCC’s financial leverage is likely to increase over the next three years, although the company should in general be able to maintain its net debt to EBITDAR ratio in line with its long-term leverage target of 2.0x to 2.5x. SCC’s major capex during 2006 to 2010 include a second naphtha cracker and downstream plants, a new printing and writing machine, new packaging paper line and box plants, as well as a cement plant in Cambodia, worth approximately THB75bn. Other key credit concerns include high execution risks of new investments and exposure to contingent liabilities, although this has been substantially reduced due to the recent divestment of its 41%-owned Millennium Steel Plc. Contingent liabilities now stand at THB3.5bn.
In H106, SCC reported 15% year-on-year increase in consolidated net sales to THB128bn, largely driven by higher petrochemicals prices and the consolidation of Thai Plastics and Chemicals Plc (“TPC”). While the group’s overall sales growth was relatively strong, its operating performance was negatively affected by squeezed margins as a result of declining petrochemical spreads, the revenue contribution of lower-margin TPC and rising energy costs for cement production. SCC’s EBITDAR margins declined to 17% in H106 from 22% in H105. In absolute terms, its EBITDAR (pre-dividend income) dropped by 10% yoy to THB23bn for H106. Including dividends from associates, EBITDAR stood at THB26bn in H106, down 16% yoy, reflecting a considerable drop in dividend upstreamed from its affiliates.
SCC’s consolidated net debt level remained at THB100bn at end-H106 (at end-2005; THB101bn), largely as a result of the consolidation of approximately THB5.0bn in TPC’s net debt. The group’s net debt to last-twelve-months EBITDAR ratio increased marginally to 2.5x at end-H106 (at end-2005; 2.3x), reflecting its weaker operating performance and additional debt from the consolidation of TPC. Including dividends from associates, SCC’s consolidated net debt to last-twelve-months EBITDAR ratio weakened to 2.2x at end-H106 (at end-2005; 2.0x). Although the large investment plans are likely to see a weakening in SCC’s credit protection ratios, especially amid a less favourable earnings environment, expected stronger EBITDAR growth from higher capacity should help reduce its financial risk over the long-term.
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.
Contacts: Orawan Karoonkornsakul, Lertchai Kochareonrattanakul, Wasant Polcharoen, Vincent Milton; Bangkok, Tel: +662 655 4755.
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