Bangkok--23 Jan--Fitch Ratings Fitch Ratings (Thailand) Limited has today upgraded the National Long-term senior unsecured rating of Thailand's Thoresen Thai Agencies Public Company Limited (TTA) to 'A-(tha)' (A minus(tha)) from 'BBB+(tha)'. The Outlook on the rating is Stable. The rating upgrade is supported by a significant improvement in the recovery prospects of TTA's unsecured creditors - following the issuance of its USD170 million unsecured convertible debentures to refinance its secured vessel loans. As a result, TTA's secured debt level fell sharply to 38% of total debt, 12% of total assets and 0.5x of EBITDA at FYE07 (ending 30 September 2007) - compared with 100%, 39%, and 1.6x at FYE06, respectively. The company's net book value of fixed assets/secured debt ratio also improved substantially to 5.5x from 1.9x at FYE06. However, Fitch notes that TTA's secured debt level is likely to increase gradually - due to its relatively large capex plan - but this should remain at less than 20% of total assets and 1.5x of EBITDA over the next three years. TTA's rating reflects its established position in the dry bulk shipping niche market - particularly on the China, Southeast Asia and Middle East routes - and its diversified fleet employment strategy. The company's exposure to volatility in tonnage demand and freight rates should be partially mitigated by a balanced mix of liner and charter services, and increasing revenue contribution from non-shipping businesses - primarily the offshore services business. TTA's long-term strategy to lock in approximately 30% of its available capacity on time charter contracts helps provide some earnings visibility and secured cash flow streams for the company - although this fell to 22% at FYE07 from 42% at FYE06 in light of an upturn in dry bulk freight rates. The rating is also backed by TTA's relatively conservative financial profile and strong cash flow generating capability. Despite this, the rating is constrained by the cyclical, volatile, and fragmented nature of the dry bulk shipping industry, and also takes into account TTA's relatively large capex plan for its fleet renewal program and its offshore services business expansion. The company budgets to spend approximately USD1.0 billion on its fleet replacement and another USD250m-USD300m on its tender drilling rig acquisition over FY08-FY13. This is likely to raise its net debt/EBITDA and net adjusted debt/EBITDAR ratios to a range of 1.0x-2.0x and 2.0x-3.0x, respectively, during FY08-FY10. However, these ratios may decline significantly if the convertible bondholders convert the bonds into ordinary shares in FY10-FY12. Other credit concerns include oversupply risk in 2009-2010 - given the currently large order book for new dry bulk vessels. However, this concern is partially mitigated for TTA - with around 74% of total order book being placed for vessels bigger than its operating segments. In FY07, TTA's consolidated sales grew 27% yoy to THB20.4bn, in light of the exceptionally strong dry bulk freight rates. Despite rising freight rates, its EBITDA margin remained relatively flat at 36%, compared with 35% in FY06. This was mainly due to increasing vessel operating expenses and significant downtime of tender drilling rigs. As a result, its EBITDA in absolute terms grew 29% yoy to THB7.3bn. TTA's financial liquidity is healthy, supported by its cash balance of THB3.7bn at end-September 2007 and its unutilised committed banking facilities of around USD396m - primarily for the vessel acquisition - as well as the availability of some unencumbered vessels. The Stable Outlook reflects Fitch's expectation that TTA will maintain its established position in the niche market, its well-balanced fleet employment strategy, as well as the moderate level of financial leverage. Contacts: Soamsiri Chadavadh +662 655 4753; Lertchai Kochareonrattanakul +662 655 4760; Vincent Milton +662 655 4759