Bangkok--29 Aug--TRIS Rating TRIS Rating Co., Ltd. has affirmed the company rating Khon Kaen Sugar Industry PLC (KSL) at “A-” with “stable” outlook. The rating reflects the company’s long track record in the Thai sugar and sugarcane industry, its efficient sugar plant operations, downstream integration into value-added products, and a healthy balance sheet. The rating also takes into consideration the company’s exposure to regulatory and operational risks of sugar operations in Laos and Cambodia, and the volatility of sugarcane supply and sugar prices. The “stable” outlook reflects the expectation that KSL will maintain its strong market position in the Thai sugar industry. Sugarcane plantations and sugar mill projects in Laos and Cambodia are expected to be well managed and within budget. The company is expected to maintain its strong financial profile to accommodate increasing business risks in its foreign operations. TRIS Rating reported that KSL is one of the top five sugar producers in Thailand, established in 1945 by the Chinthammit family and associates. Currently, the Chinthammit family collectively holds 67% of the company’s shares. The company owns and operates four sugar plants in Khon Kaen, Kanchanaburi and Chonburi provinces, with combined cane crushing capacity of 66,000 cane tonnes per day. During the last five years, KSL and companies in the KSL Group have been able to procure 4-5 million tonnes of sugarcane per year, with the Group’s sugar production averaging 503,000 tonnes per year. For the 2006/2007 production period, the KSL Group was the 4th ranked sugar producer in Thailand, with an 8.3% market share of sugarcane, behind only the Mitr Phol Group (18.9%), Thai Roong Ruang Group (18.1%) and Thai Ekkalak Group (14.0%). KSL’s sugar production in the 2006/2007 crushing period was 533,012 tonnes, up by 30% from the previous year, which was in line with the overall growth of Thailand’s sugar production in the same period. Apart from the sugar business, KSL has expanded along the sugar value chain to maximize its utilization of sugarcane. These businesses include ethanol production and electricity generation. In 2006, ethanol sales were impressive, accounting for approximately 10% of KSL’s total sales and 25% of total operating profits due mainly to limited supply of ethanol. Because the government has reversed an earlier decision to discontinue production and distribution of 95-octane gasoline, the demand growth for ethanol has slowed down, resulting in lower prices. TRIS Rating said, KSL’s balance sheet has been strong. As of October 2006, total debt was Bt2,194 million against an equity base of Bt7,518 million. The total debt to capitalization ratio continued to be healthy, even though it increased from 8.25% in 2005 to 22.59% in 2006 due to capital expenditures for the ethanol and power plant projects. For the first six months of 2007, total debt increased to Bt5,675 million and the ratio rose to 42.22% due to the seasonality of working capital requirements during the sugarcane crushing period. The operating income before depreciation and amortization to sales ratio remained relatively stable, ranging from 13%-17% during the last five years, due partly to the revenue sharing system of Thailand’s sugar and sugarcane industry. Due to constraints on sugarcane supply in Thailand, in 2006, KSL started to invest in sugarcane plantations and sugar plants in Laos and Cambodia. The combined investment in these two projects is Bt4,700 million. KSL expects to export raw sugar at higher prices from Laos and Cambodia to the European Union (EU) under the EBA (Everything But Arms) scheme in 2009. The political, regulatory and operational risks of running sugar plants in those countries remain concerns. TRIS Rating also said that sugarcane production volume in Thailand has been very volatile, depending on natural rainfall, plantation area, and cane prices relative to competing products. Production declined continuously from a historic high of 74 million tonnes in the 2002/2003 production period to 47 million tonnes in 2005/2006. However, sugarcane production in 2006/2007 soared to 63.8 million tonnes, due to the improving water situation and high preliminary sugarcane prices. As water is plentiful, sugarcane production in the 2007/2008 period is expected to be at least the same level as the 2006/2007 period. Though the domestic sugar price is relatively stable, the export price is volatile, depending on global demand and supply of sugar and related products. The global raw sugar price increased sharply from 10.67 cents/lb in 2004/2005 to 18.93 cents/lb in February 2006, then gradually declined to 12.18 cents/lb in July 2007. With approximately 60% of sugar sales coming from export markets, KSL’s exposure to sugar price volatility and Thai baht appreciation is mitigated by the 70:30 revenue sharing system. The sharing system results in a high correlation between sugar and sugarcane prices, said TRIS Rating.