Bangkok--7 Dec--Fitch Ratings Fitch Ratings (Thailand) Limited has today affirmed the National Long-term 'BBB+(tha)' rating of Thailand-based Regional Container Lines Public Company Limited (RCL)'s outstanding senior unsecured debentures due 2009. The Outlook on the rating remains Stable. The rating reflects RCL's established market position in the intra-Asia container shipping industry. This is largely supported by its extensive network coverage in the Asia-Pacific region, a large fleet of relatively young vessels, and the frequent sailing schedule. The rating also reflects RCL's ability to manage their cash flows well through the industry cycles. The company has historically demonstrated its attempt to balance cash flow from operations with capital spending. Following an aggressive fleet expansion during the industry upcycle in 2004-2005, RCL has slowed down its capex plan and gradually reduced its consolidated debt to THB7.5bn at end-9M07 - from THB8.8bn at end-2006 and THB11.4bn at end-2005. Given its moderate capex plan of around THB10.4bn over 2007-2011, RCL's net debt/EBITDA and net adjusted debt/EBITDAR are likely to stay at the current level of less than 2.0x and 5.0x, respectively, through to end-2008 and gradually decline thereafter. Despite RCL's reasonably high level of secured debt - which accounted for 74% of total debt, 22% of total assets, or 1.5x of last-12-month (LTM) EBITDA at end-9M07, Fitch notes that the recovery prospect of its senior unsecured debt has improved substantially over the last five years, while its net book value of fixed assets/secured debt was also strong at 3.7x. In addition, a provision on the negative pledge of certain vessels should provide some comfort to the unsecured debentures holders. Nevertheless, Fitch says that a substantial increase in secured debt level relative to operating cash flow and assets on a sustained basis may negatively impact the rating. The rating is primarily constrained by the cyclical nature of the shipping industry and the highly volatile freight rates. However, RCL's exposure to the volatility in global demand for container shipment is partially mitigated by a balanced mixture of the feeder or Shipper Owned Container (SOC) and the liner or Carrier Owned Container (COC) businesses. Although the large order book for new containership poses a concern of oversupply to ship operators, it is expected that the effective capacity will grow at a slower pace than the nominal growth rate at around 11%-12% per annum over 2007-2009, which is in line with the expected demand growth outlook. This is mainly due to port constraints, varying vessel speeds, and the higher usage of irregular-size high cube container boxes. In addition, approximately 75% of the order book at end-June 2007 was placed for large vessels with a capacity of above 4,000 twenty-foot equivalent unit (TEU), whereas RCL primarily operates in the smaller sub-3,000 TEU segment. Other credit concerns include the sustained high fuel prices, which continue to put pressure on the profit margins of container ship operators. However, this is partially mitigated by the implementation of bunker surcharges, which allow RCL to pass through some rising fuel costs to its customers, and its attempt to maximise fleet utilisation in order to reduce operating costs per TEU.