TRIS Rating Co., Ltd. has downgraded the company and issue ratings of ASIAN Seafoods Coldstorage PLC (ASIAN) to “BBB-” from “BBB” with “negative” outlook. The downgrade reflects ASIAN’s weakened financial profile, stemming from a significant operating loss in the tuna business and a highly levered capital structure. The ratings also consider the competitive and volatile nature of the seafood industry, the company’s relatively small size compared with global players, trade barriers implemented by major importing countries, and the volatility of the Thai baht. ASIAN’s ratings are; however, supported by the experienced and capable management team and a diverse range of products and markets. The “negative” outlook reflects TRIS Rating’s concerns over ASIAN’s financial status. The company is currently in breach of some lending covenants and is expected to breach other covenants whose financial ratio limits are tested against financial results as of year-end 2007. Progress in receiving covenant waivers and the success of financial restructuring plan for leverage reduction are two crucial elements that could revise the outlook to “stable”. In addition, the company is expected to continue its efforts to revamp the tuna and feed divisions, and to fully realize the benefits from integration of the feed business to build markets for the tuna business. TRIS Rating reported that ASIAN is a Thai medium-sized seafood producer, with 2007 revenue expected to reach Bt7.6 billion. One of ASIAN’s strengths is its management team, which has a great deal of experience in the seafood business. ASIAN offers a variety of products ranging from basic products (e.g. raw shrimp) to higher value-added products (e.g. breaded shrimp and sashimi). In addition, ASIAN has a unique niche market: sillago fish products. A broad product line and long-term relationships with clients provide ASIAN with operational flexibility. ASIAN exports most of its seafood products to the US, Japan, and the EU. During 2005-2006, ASIAN invested more than Bt1 billion in a tuna processing plant, a cold storage facility, and a shrimp feed business. The investments resulted in a considerable rise in the company’s debt level. Several unfavorable factors, including the strong Thai baht, rising oil prices, and record high tuna prices, have significantly limited ASIAN’s ability to generate profits from its new ventures. These factors also have exacerbated ASIAN’s losses and pushed up its debt level even higher, resulting in a material deterioration of its financial profile. Hence, it is likely to take longer than TRIS Rating’s previous expectation for ASIAN to generate sustainable earnings and cash flow from its tuna division. In addition, due to the nature of the industry, ASIAN’s operating margins are quite narrow, and the company’s medium-sized business makes it, to a certain extent, vulnerable to large investment requirements and currency fluctuations. However, ASIAN’s operating performance is expected to gradually improve over the medium term, as tuna prices have declined from peak levels and the company has benefited from several initiatives (e.g. management changes and a cooperative arrangement with StarKist, the largest US tuna brand). Benefits of product diversification through the addition of tuna products remain achievable in the medium term, in TRIS Rating’s view. For the first nine months of 2007, ASIAN’s operating margin was 1.9%, down from 2.8% in 2006. The debt to capitalization ratio increased from 64.8% in 2006 to 71.7% as of September 2007. The earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage ratio dropped from 1.6 times in 2006 to 1.4 times for the nine months ended September 2007. Like all other seafood producers, ASIAN faces fluctuations in raw material and product prices. Its cash flows are somewhat seasonal and volatile. Its size is considered small compared to large global players. This puts it at a disadvantage in terms of economies of scale and full vertical and horizontal integration. Trade barriers imposed by importing countries continue to be a threat for seafood exporters. On the other hand, the regulations could benefit medium- to large-sized companies, including ASIAN, as many small exporters may not be able to comply with the stricter rules and may be shut out of certain markets in the future, said TRIS Rating. -- EndASIAN Seafoods Coldstorage PLC (ASIAN) Company Rating: Downgraded to BBB- from BBBRating Outlook: Negative from Stable-----------------------------------------------------------------------Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. 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