Bangkok--9 Apr--Fitch Ratings Fitch Ratings (Thailand) Limited has today revised the rating Outlook on Thailand-based Siam Cement Public Company Limited’s (SCC) to Negative from Stable. At the same time, Fitch affirmed SCC’s National Long-term rating and its senior unsecured debentures at ‘A+(tha)’, as well as its National Short-term rating at ‘F1(tha)’. The revision of the rating Outlook is based on the weakening in SCC’s business fundamentals in its core businesses, due to higher raw materials and energy costs, over-capacity and uncertain global demand, which could further weaken its financial performance and margins, as well as reduce its financial flexibility. This comes in the midst of the company’s substantial investment in new capacity expansion during 2008-2010, while potential concurrent increases in capacity by key competitors could put further downward pressure on SCC’s margins and push up its financial leverage higher than currently anticipated. However, this could be partly mitigated by the group’s continuing flexibility on its investment plan during 2009-2010 and its ability to generate cash through further sale of its non-core investments. In addition, a weakening global macro-economic environment, led by the impact from a US recession will likely intensify and extend the down-cycle of its core businesses, particularly petrochemicals, which accounts for about 50% of the group’s EBITDA. SCC reported an operating EBITDA of THB38.7bn in 2007, which was significantly below the company’s projection of about 20%, due largely to downward pressure on its margins as a result of ongoing high input costs and the appreciation of the Thai Baht against its export revenue. SCC’s operating EBITDA margins continued to fall to 14.5% in 2007 from 25.3% in 2004. Nonetheless, SCC’s financial leverage as measured by net debt to EBITDA (including dividend income) stood at 2.1x at end-2007 (end-2006: 1.9x), still in line with the company’s projection as its actual capital spending was significantly below the budget. With significant increase in investments and weakening EBITDA prospects, SCC expects its net debt to EBITDA to increase to the range of 2.5x-3.0x during 2008-2009, while expected EBITDA growth from capacity expansion should help reduce its financial leverage to below the company’s long-term target of 2.5x by end-2010. SCC has committed to a substantial investment programme of THB57bn during 2008-2010, mainly including its second naphtha cracker and downstream projects in Thailand, a new investment in Vietnam’s packaging paper plant, a printing and writing paper capacity expansion in Thailand and waste heat generator projects which are related to an efficiency improvement programme for the cement division. During the same period, the company also has additional uncommitted investments of about THB35bn on its core businesses which are under feasibility studies. These projects, however, are subject to downward adjustment or postponement if the senior management views that this could adversely impact the company’s long-term financial leverage trend. Fitch views that continued margin shrinkage or higher-than-expected financial leverage could negatively affect SCC’s ratings. Meanwhile, stronger-than-expected cash flow generation which could help improve its financial leverage to be at the long-term target of 2.5x or below on a sustained basis would serve to stabilise the ratings. SCC is one of Thailand’s largest industrial conglomerates, with the assets of THB249bn and consolidated sales of THB268bn in 2007. SCC underwent a major business reorganisation after the country’s financial crisis in 1997, selling off non-core assets and streamlining its core operations into five areas, including cement, petrochemicals, paper, building products and distribution. SCC is 31.9% owned by the Crown Property Bureau (CPB), the investment agency of the Thai Crown. Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA(tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. Contacts: Wasant Polcharoen, Lertchai Kochareonrattanakul, Vincent Milton, Bangkok, +662 655 4755 Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.