Bangkok--4 Apr--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a final National Long-term rating of 'AA(tha)' to DaimlerChrysler (Thailand) Limited's (DCT) new THB2.5 billion guaranteed debentures due in 2009. The Outlook on the rating is Stable.
The rating is based entirely on the full, irrevocable and unconditional guarantee on the debentures by DaimlerChrysler AG (DCX, rated 'BBB+'/Stable). The International 'BBB+' rating for DCX is currently two notches below Thailand's Long-term local currency Issuer Default rating (IDR) of 'A' with a Stable Outlook. Therefore, the guaranteed debentures are rated two notches below Thailand's National 'AAA(tha)'* rating. Fitch notes that any changes in the International rating differential between DCX and the Thai sovereign will affect the debentures' National rating. Investors should note that a one notch change in DCX's International rating could result in a greater than one notch change in the debentures' National rating.
The rating of the guarantor, DCX, reflects the group's leading position in the automotive and trucks industries, its sound business and geographic diversification, as well as its strengthening financial profile. Fitch believes that the group has strengthened its overall credit profile in 2005 and 2006 but uncertainties relating to the Chrysler division's (CG) future have emerged recently. The group has made substantial progress on the quality issues that hit the Mercedes Car Group (MCG) division two years ago, and has managed to improve the margins of the Truck Group (TG) division due to favourable market conditions and ongoing efficiency improvements.
However, the rating also reflects substantial challenges that the group will need to address to maintain the positive momentum. Automotive markets remain extremely challenging with competition intensifying and low growth prospects in the U.S. and Western Europe. Fitch is concerned about the high incentives being offered in the U.S., the relentless competitive pressure from Asian brands and the possible shift in demand away from CG's cash-generating light truck vehicles, which would put margins at risk. In addition, a significant decline is expected in the heavy truck industry in 2007 due to the introduction of more stringent emission regulations, thereby putting earnings under pressure. However, TG's margins should rebound in FY08 thanks to a more efficient cost structure and higher synergies.
Fitch also notes that DCX's plan to return the CG to profitability and enhance its business model is a necessary step but remains subject to several challenges and execution risk. Fitch will monitor closely the execution of the plan, delivery of its announced targets and their impact on the group's credit profile, particularly in the next six to 12 months. A failure to demonstrate improvement in CG's underlying profitability and cash generation in 2007 would put renewed rating pressure on DCX. However, Fitch expects improvements in the group's other divisions, mainly MCG, to mitigate CG's weak financial metrics in 2007.
DCT is 99.99%-owned by DCX. DCT is responsible for the import and wholesale functions for Mercedes-Benz vehicles and Chrysler automobiles for distribution in Thailand. Mercedes-Benz is well-recognised in the premium segment in Thailand, with its relatively low after-sales service costs and the high value of its products in the second-hand market. Mercedes-Benz has maintained its leading position in the premium car segment for several decades. In addition, DCT provides hire purchase and leasing services through its 99.99% leasing subsidiary, DaimlerChrysler Leasing (Thailand) Company Limited.
Contacts: Lertchai Kochareonrattanakul, Soamsiri Chadavadh, Vincent Milton, Bangkok, Tel: + 662 655 4755; Emmanuel Bulle, Paris, Tel: +33 1 44 29 91 84
*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.
Media Relations: Shivani Sundralingam, Singapore, Tel: + 65 6336 6801.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com . Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
101 Finsbury Pavement, London, EC2A 1RS