Bangkok--8 Jan--Moody's Investors Service
Moody's Investors Service has today downgraded to Caa1 from B3 the corporate family rating and senior unsecured ratings of G Steel Public Company Limited ("G Steel"). The outlook for the ratings remains negative.
"The downgrade reflects the heightened near-term liquidity risk stemming from dramatic deterioration in G Steel's operating environment and the resulting adverse impact on its sales and earnings," says Kathleen Lee, Moody's lead analyst of the company.
"This is likely to constrain the company's ability to repay upcoming semi-annual loan installment of US$15 million in April 2009." adds Lee.
"The downgrade also reflects Moody's concerns over G Steel's inability to meet its financial covenants as a result of its weak operating results.
As terms and conditions of the amortizing loan have not been fully disclosed, there is a risk that the cross-default provisions on the unsecured bond may be triggered if G Steel fails to comply with the loan covenants," says Lee.
Moody's notes that G Steel 's short-term working capital requirements have been eased by supplier credit support, while sales are progressively being made against advanced payments.
The negative outlook reflects the continuing challenging operating environment facing G Steel over the medium term, as well as the company's weak liquidity position. It also takes into account near-term financing risk under its scheduled semi-annual loan maturities in 2009 that are without the support of available committed facilities.
A rating upgrade is unlikely given the negative outlook. On the other hand, downward pressure could occur if G Steel's operating and liquidity profiles weaken further. Moody's also expects the company to maintain average EBIT/Interest above 1x, and/or adjusted debt/EBITDA below 6x on a sustained basis, failing which downward rating pressure would emerge.
The previous rating action was on June 19, 2008, when G Steel's corporate family rating and unsecured debt rating were confirmed at B3 with a negative outlook.