Bangkok--18 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has today downgraded Siam Cement Public Company Limited’s (SCC) National Long-term rating to ‘A(tha)’ from ‘A+(tha)’. SCC’s National Short-term rating has been affirmed at ‘F1(tha)’. Also, the agency has downgraded the National Long-term ratings of SCC’s existing senior unsecured debentures to ‘A(tha)’ from ‘A+(tha)’, and assigned a ‘A(tha)’ National Long-term rating to the company’s upcoming senior unsecured debentures of up to THB20bn due 2013. The proceeds of the new debentures will be mainly used to refinance the company’s maturing debentures and is partly reserved for investing in new projects. The rating Outlook has been revised to Stable from Negative.
The ratings downgrade is a result of the effect of weakening global economy on SCC’s 2008 earnings performance and margins, which weakened to below expectations. Also, the global economic recession and Thailand’s sharp economic slump will put pressure on demand and pricing prospects for the company’s core businesses in 2009, slowing SCC’s de-leveraging over the next 24 months, despite the group’s announcement of a cost control programme, and more flexibility on new investments and dividend payout policy.
SCC reported an operating EBITDA of THB31.0bn in 2008, down 20% yoy, reflecting margin pressure caused by higher raw materials and energy costs during the first nine months of 2008, as well as the substantial inventory write-down of about THB5.0bn due to a sharp commodity price collapse in Q408. The full-year operating EBITDA to December 2008 was consequently weaker than Fitch’s expectation, while its operating EBITDA margins also declined to 11% (2007; 15%). Together with a scheduled increase in capital spending, SCC’s financial leverage as measured by net debt to EBITDA (included dividend income from associates) weakened to 3.1x at end-2008 from 2.1x at end-2007.
Continued deterioration in the global economic environment will likely impact SCC’s exports in 2009, while its domestic sales will be hit by Thailand’s sharp economic contraction. The weak EBITDA prospects, together with a high committed investment plan of THB36bn in 2009, will likely weaken SCC’s net debt to EBITDA (including dividend income) to around 3.5x. Although the company expects to reduce its financial leverage to its target level of 2.5x by end-2010, Fitch believes the risk of a severe and prolonged global economic recession with increasing operational risks could result in SCC’s financial leverage remaining above this target over the next few years.
The Stable Outlook reflects the expectation that SCC’s strong market position, large cash flow base and a reduction in its investment plan should provide sufficient liquidity and financial flexibility consistent with the current rating level over the medium term. SCC’s liquidity should remain strong despite the tougher operating environment, supported by its cash balance of THB26.7bn at end-2008, as well as its ability to tap the local debt capital market.
On the key rating triggers, Fitch notes that continued margin declines or sustained high financial leverage could trigger further negative rating action. Meanwhile, stronger-than-expected cash flow generation, which could help improve the company’s financial leverage to 2.5x or below on a sustained basis, would positively affect 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
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