Bangkok--30 Jul--TRIS Rating TRIS Rating Co., Ltd. has upgraded the company rating of Vinythai PLC (VNT) to “A-” from “BBB+” with “stable” outlook. The rating is based on the company’s efficient fully-integrated production facility, strong financial profile, capable management team, and support from its principal shareholders, Solvay S.A. of Belgium, PTT Chemical PLC (PTTCH), and Charoen Pokphand Group (CP Group). The rating also takes into consideration successful expansion projects which strengthen its operating cash flow. However, these strengths are partially offset by the cyclical nature of the petrochemical industry, increasing competition from Chinese producers, and lower operating margins resulting from rising ethylene prices. The “stable” outlook reflects the expectations that VNT will be able to maintain its low cost position and there will be no major threats to the PVC industry. TRIS Rating expects VNT’s management to continue its conservative financial policy in the intermediate to long term. TRIS Rating reported that VNT is Thailand’s second largest polyvinyl chloride (PVC) manufacturer, with capacity of 280,000 metric tons per annum (mtpa), or 28% of total domestic capacity. Major shareholders have extended full support to VNT’s operation: Solvay provides technical support and international distribution channel, PTTCH supplies ethylene, and CP Group is a key customer. The PVC plant is fully backward integrated, yielding a premium operating margin compared with its rivals. However, due to a substantial rise in the price of ethylene over PVC since 2006, VNT’s operating margin dropped significantly, falling from over 20% to the level of 10%-15%. The pricing trend seems to persist as oil prices remain high. The competition is more severe in both the domestic and international markets, which China remains the key player. Huge new supplies have come on stream in China, which not only reduced its PVC imports drastically, but will also turn China into net exporter in the near future. TRIS Rating said, VNT’s financial profile improved as operating margin increased from 10.1% in 2006 to 13.4% in 2007, and further rose to 15.4% in the first quarter of 2008. In 2007, the company started commercial production of vinyl chloride monomer (VCM) expansion phase which increased its total sales for 60%, compared with the previous year. As a result, funds from operations (FFO) nearly doubled from Bt867 million in 2006 to Bt1,665 million in 2007 and recorded Bt488 million for the first three months of 2008. Thanks to a conservative financial policy, VNT’s leverage remains very low and interest expense is small. As at the end of 2007, the total debt to capitalization ratio declined to 12.9% from 14.1% in 2006, following the scheduled repayment of long-term loan. The ratio increased slightly to 13.8% at the end of March 2008 due to increased borrowings for working capital. The FFO to total debt ratio increased from 43.4% in 2006 to 88.8% in 2007, and was 23.7% (non-annualized) for the first three months of 2008. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio, though declining, is considered satisfactory at 22.4 times in 2006, 15.1 times in 2007 and 12.4 times for the first quarter 2008.