Bangkok--12 Sep--Moody's
Moody's Investors Service has lowered the corporate family rating and senior unsecured bond rating of G Steel
Public Company Limited ("G Steel") to B3 from B2. The outlook for both ratings is negative.
"The rating downgrade reflects the company's weaker than expected operating performance and the heightened refinancing risk. This follows the company's inability to term out the one year US$120 million bridge loan arrangement made in August 2006 for the acquisition of Nakornthai Strip Mill Plc ("NSM")," says Alan Greene, a Moody's Senior Vice
President.
While the bridge loan has been temporarily extended for 2 months, a longer-term solution at an affordable cost has yet to be found under the current tight credit environment. Moreover, it is likely that longer-term funding, if available, will come at a high cost and further pressure the company's key coverage measures.
"Moody's expects some pick up in production from the levels seen in Q2 FY07, when it was unusually outsold by NSM, and this will improve its modest capacity utilization," says Greene, also Moody's Lead Analyst for G Steel, adding, "However, the impact on its credit metrics may be negligible, given the weak domestic demand for hot rolled coil ("HRC") due to slower growth in the Thai economy and the competitiveness of export markets, at a time of rising costs."
Projected adjusted debt/EBITDA of around 6x and EBIT/interest of about 1.0-1.2x over the next 1 to 2 years more appropriately position G Steel at the B3 rating level.
The negative outlook reflects the near-term high refinancing risk of G Steel. The outlook would be stabilized if G Steel could successfully put in place appropriate longer-term refinancing arrangements for its bridge loan.
However, the rating could be downgraded if G Steel fails to refinance or extend the bridge loan upon its maturity by the end of October.
Downward rating pressure could also emerge if: 1) G Steel's operating and liquidity profiles weaken further, due to poor management of working capital and high production costs, or negative impact from the political situation in Thailand; 2) capex investments made and integration with NSM do not proceed as planned, with substantial cost overruns or challenges
in completion; and/or 3) HRC prices decline, such that revenue and operating cash flow falls beyond Moody's expectations.
The key credit metrics that Moody's would consider for a downgrade include average EBIT/interest falling below 1.0x, and/or average adjusted debt/EBITDA rising above 6.0 -- 7.0x on a sustained basis.
G Steel, headquartered in Bangkok, is Thailand's second largest HRC steel manufacturer and distributor. It currently produces about 1 million ton of steel per year using the electric arc furnace and continuous casting methods.
Alan Greene
Senior Vice President
Corporate Finance Group
Moody's Singapore Pte Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (65) 6398-8308
Brian Cahill
Managing Director
Corporate Finance Group
Moody's Investors Service Pty Ltd
JOURNALISTS: (612) 9270-8102
SUBSCRIBERS: (612) 9270-8100