Bangkok--25 Sep--Fitch Ratings Fitch Ratings (Thailand) Limited has today assigned a National Long-term rating of ‘A+(tha)’ to Thailand-based Siam Cement Public Company Limited’s (SCC) new unsecured and unsubordinated debentures No.2/2008, amounting up to THB20bn due 2012. The proceeds will be used to refinance the company’s maturing debentures and invest in new projects. The rating Outlook on the company is Negative. The rating is based on SCC’s good revenue diversification, its leading position, extensive distribution channels and strong brand recognition in the domestic market. The rating also reflects the group’s relatively strong cash flow generation and track record of its senior management. Despite this, the rating also takes into account SCC’s large investments for its new capacity expansion projects. The company’s planned investment budget stood at 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 for the cement division. During the same period, the company also has additional uncommitted investments of about THB35bn which are under feasibility studies. This includes a petrochemical complex in Vietnam, new cement plants in Cambodia and Indonesia, as well as other new potential acquisitions in this region. These uncommitted projects 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. Other key credit concerns include its exposure to foreign exchange risks and the execution risk of new investments. SCC reported an operating EBITDA of THB19.7bn in H108, down 5.4% yoy, due to the impact on margins as a result of high raw material and energy costs and the appreciation of Thai Baht against the US Dollar; EBITDA margins weakened to 12% in H108 from 16% in H107. SCC, however, expects to see some improvement in EBITDA performance in H208 given the weakening trend in global energy prices. Meanwhile, its net debt to EBITDA (including dividend income) weakened to 2.2x at end-H108 from 2.1x at end-2007, in light of a significant increase in investments and weakening EBITDA performance. SCC expects its net debt to EBITDA ratio 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. The Negative Outlook on the company is based on the weakening in SCC’s business fundamentals in its core businesses - due to higher input costs, as well as the impact from concurrent increases in capacity by key competitors and intensifying competitive pressure in key markets, which continues to impact margins. This comes in the midst of the company’s substantial new capacity expansion on the core businesses during 2008-2010, although this could be partly mitigated by the group’s continuing flexibility on its investment plan and its ability to generate cash through sales of its non-core investments. In addition, the current weakening in the global macro-economic environment, led by a US slowdown, will likely intensify and extend the down-cycle of its core businesses, particularly petrochemicals, which accounts for c.50% of the group’s EBITDA. Fitch views that a continuous decline in margins or a 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. 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, Somruedee Chaiworarat, 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.