Bangkok--18 Sep--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National Long-term senior unsecured rating of ‘A-(tha)’ (A minus(tha)) to Thailand’s Thoresen Thai Agencies Public Company Limited (“TTA”). The Outlook on the rating is Stable.
The rating reflects TTA’s established position in the dry bulk shipping market in Thailand, the diversified fleet employment strategy and the operating leverage resulting from its cost-efficient fleet expansion between 2003 and 2005. With its current fleet of 45 owned vessels, established service network, frequent sailings and efficient logistics management, TTA is one of the largest dry bulk liner services on the rapidly expanding route from Southeast Asia and China to the Middle East. Fitch notes that TTA’s exposure to volatility in tonnage demand and freight rates should be partly mitigated by a balanced mix of liner and charter services, and increasing earnings contribution from non-shipping businesses as TTA recently increased its stake in Mermaid Maritime Limited (“MML”), an offshore marine services operator, to 74% in the three-month period ended 30 September 2006 from 50% in the same period the previous year. In addition, the company has secured around 42% and 25% of total carrying capacity under time charter contracts in FY06 (the fiscal year ended 30 September 2006) and FY07, respectively. The agency says that this should provide some earnings visibility and secured cash flow streams to the company over the next two years.
The rating also takes into account the company’s refinancing plan for the entire outstanding secured vessel loans through the issuance of new senior unsecured amortising debentures of up to THB8.0 billion by end-2006. If this refinancing plan is not completed, it would lead to a trigger for a rating downgrade as TTA’s high level of secured debt impairs the recovery prospect of unsecured debt. Credit concerns include the cyclical nature of the shipping industry and the freight rate volatility, which is partly mitigated by TTA’s relatively conservative financial profile. The rating also factors in the fleet’s relatively high weighted average age, which generally results in lower operating efficiency and increased operating and reinvestment risks. Given the low availability of small dry bulk vessels in the market and the long lead time in ship building, the company may face difficulties in acquiring new ships and substantially higher replacement costs. Although the company should be able to charter in vessels on a short to medium term basis to temporarily serve its capacity needs, its profit margin could be adversely affected by highly volatile charter rates. This operating risk, to date, has been well-managed.
Due to its aggressive fleet expansion, TTA’s consolidated debt has consistently increased since FY02 and stood at THB9.7bn at end-June 2006, of which approximately 17% was short-term debt. In light of a weakening in freight rates and the consolidation of MML’s debt of THB2.7bn, TTA’s adjusted net debt/last-12-month (“LTM”) EBITDAR rose slightly to 1.8x in the nine-month period ended 30 June 2006 from 1.0x and 1.2x in FYE04 and FYE05, respectively. Assuming capex of around THB5.6bn over FY06 to FY08, TTA’s adjusted net debt/EBITDAR is expected to be below 2.0x at FYE06 and gradually decline thereafter as it continues to repay its debt obligations. Although TTA currently has a high level of secured debt, accounting for 99% of total debt and 41% of total assets, with secured debt/LTM EBITDAR at 1.6x, as of end-June 2006, the refinancing plan should bring down its secured debt to around 23% of total debt or 0.4x of FY06 EBITDAR. TTA’s cash balance of THB1.7bn, together with its undrawn committed banking facilities of USD35m, at end-June 2006 should be sufficient to support its liquidity needs.
Contacts: Soamsiri Chadavadh +662 655 4753; Lertchai Kochareonrattanakul +662 655 4760; Vincent Milton +662 655 4759
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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