Bangkok--12 Mar--Moody's Investor
Approximately US$260 million in debt securities affected
Moody's Investor Services has changed to positive to stable the outlook for both Advance Agro Public Company Limited's (Advance Agro) B3 corporate family rating and the senior unsecured bond ratings on its notes due in 2007 and 2012.
"The rating action follows the company's refinancing most of its 2007 notes, which currently show an outstanding amount of around US$10 million and still exhibit a technical breach status," says Ken Chan, a Moody's AVP/Analyst based in Hong Kong.
"However, Moody's believes the likelihood of bondholders requesting an acceleration in repayments is unlikely, and the company's cash-on-hand of around US$22 million at end-2006 is more than sufficient to meet its obligations, if needed," adds Chan.
The positive outlook also reflects the improvement in Advance Agro's balance sheet leverage, including adjusted Total Debt/EBITDA of 3.5x and adjusted TD/Cap of around 49% in FY06, down respectively from 4.5x and over 55% a year ago.
"Furthermore, the rating is supported by the company's competitive cost position, brand development strategy -- which includes good quality products -- and track record for generating positive free cash flow," says Chan.
At the same time, the rating reflects the inherently volatile nature of pulp and paper product prices. Moody's also notes that Advance Agro is expected to build a new paper mill in the near-to-medium term, given its current high utilization level. This project will likely be funded through a mix of debt and equity.
In accordance with Moody's rating methodology for the paper & forest products industry (refer to Rating Methodology: Global Paper & Forest Products Industry, June 2006), the overall performance measurements for Advance Agro's underlying fundamentals indicate a Ba rating category.
Moody's also notes the credit metrics of Advance Agro are strong relative to those of its regional peers, but the current rating is constrained by:
1) the current technical breach status of the 2007 notes; 2) a track record of defaulted loan repayments; and 3) the existence of material related-party transactions and concern on corporate governance practice. The ratings could undergo an upgrade if the company maintains its currentfinancial profile, including TD/EBITDA below 4.0-4.5x on a sustainable
basis, and adopts a prudent financial policy to fund the planned expansion of its production capacity. Improvements in its liquidity profile, including reduced reliance on short-term funding, would also be positive for the ratings. On the other hand, the outlook will revert to stable if a materialdownturn occurs in the paper market, or beyond Moody's expectations, resulting in TD/EBITDA above 4.5-5.0x and EBITDA/Int below 1.5-2.0x.
Furthermore, evidence of the up-streaming of funds to support other group companies would pressure the ratings.Advance Agro Public Company Limited, headquartered in Bangkok, Thailand, is an integrated producer of pulp, uncoated free sheet, and coated paper.
Hong Kong
Ken Chan
Asst Vice President - Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 2916-1121
Singapore
Alan Greene
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308