Bangkok--22 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed the ratings of The Siam Cement Plc ("SCC"), Thailand's largest industrial conglomerate, at National Long-term rating 'A+(tha)' with a Stable Outlook and National Short-term rating 'F1(tha)'. At the same time, Fitch affirmed the 'A+(tha)' ratings of SCC's outstanding senior unsecured debentures, and assigned similar ratings of 'A+(tha)' to SCC's upcoming senior unsecured debentures No.1/2007, amounting up to THB15 billion, due 2011. The new debentures will be used to refinance the company's maturing debentures as well as to invest in the new projects.
The ratings are based on SCC's good revenue diversification, its leading position and strong brand recognition in the domestic market, as well as its relatively strong cash flow generation and a moderate financial leverage target. The group's debt serviceability and financial flexibility is further supported by its strong access to the local debt capital market. Nonetheless, SCC faces continued margin pressure due to rising energy costs, the impact from large excess supply and competitive operating environment in all SCC's core businesses. SCC recently revised up its investment plans during 2007 to 2010 by 20% to THB91bn, mainly due to an upward revision on budgets for its second naphtha cracker and downstream projects, a new investment in packaging paper line in Vietnam and an efficiency improvement programme for the cement division. In light of its large investment plans, SCC's financial leverage is likely to increase, although the company should in general be able to maintain its net debt to EBITDAR ratio in line with the long-term leverage target of 2.5x. 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 continued de-leveraging efforts through divestments of non-core investments.
In 2006, SCC's consolidated net sales and EBITDAR (pre-dividend incomes) increased by 18% year-on-year ("yoy") and 6.7% yoy to THB258bn and THB46bn, respectively, supported by the strong top-line growth driven by higher petrochemicals prices and the consolidation of Thai Plastic and Chemicals Plc ("TPC"), as well as a moderate growth in cement and paper and packaging divisions. The agency notes that including dividends from associates, EBITDAR increased by 7.4% yoy to THB53bn in 2006. However, its operating margins were negatively affected by rising energy costs for cement production and the revenue contribution from the lower-margin TPC business. SCC's EBITDAR margins declined to 18% in 2006 from 20% in 2005.
Despite some rise in net debt to THB103bn at end-2006 (from THB101bn at end-2005), the group's net debt to EBITDAR ratio improved marginally to 2.2x at end-2006 from 2.3x at end-2005, thanks to its strong EBITDAR base. Including dividend income, SCC's consolidated net debt to EBITDAR ratio improved to 1.9x at end-2006 from 2.0x at end-2005. 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.
The Stable Outlook is based on the expectation that SCC's revenue diversification, a leading position in its core businesses, its solid EBITDAR base and dividends received from its associates will help maintain moderate finance leverage.
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: Wasant Polcharoen, Soamsiri Chadavadh, Vincent Milton; Bangkok, Tel: +662 655 4755.
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