Bangkok--30 Apr--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Thailand-based Thoresen Thai Agencies Public Company Limited (TTA)’s senior unsecured rating at National Long-term ‘A-(tha)’ (A minus (tha)). The Outlook remains Stable.
TTA’s rating reflects its established position in Southeast Asia’s dry bulk market as well as its well-balanced fleet employment strategy. The company’s long-term strategy to maintain approximately 30% of its available capacity in time charter contracts helps mitigate its exposure to volatility in tonnage demand and freight rates, and also provides some earnings visibility and secured cash flow streams to the company. The rating is further supported by TTA’s diversification to offshore marine service business - which is more influenced by oil and gas production activities than the shipping industry - and considers TTA’s relatively conservative financial profile, as supported by its low financial leverage and efficient cash flow management.
Nevertheless, the rating is constrained by the cyclicality and volatility of the dry bulk shipping industry. The industry is facing a downturn for at least over the next 12-18 months - as evidenced by the collapse in freight rates in late 2008 - while oversupply risk in 2009-2010 remains a concern. However, Fitch views that the impact from the industry down cycle on TTA should be mitigated to some extent by the company’s diversification to offshore marine service business, which is likely to be less affected by the global economic recession.
Fitch notes that TTA has successfully reaped benefits from the upturn in the industry cycles during FY04-FY08 (ending 30 September of the year). Its financial leverage has also remained low at below 2.0x since FY04. In light of a hike in freight rates throughout FY08 right before the collapse in the following quarter, TTA showed an impressive performance with more than 60% growth both in sales and EBITDA as well as more than tripled free cash flow, resulting in a cash balance of more than THB11bn at the end of FY08. This not only provides TTA with a large cushion against the current industry downturn and the impact from global economic recession but also made it well prepared for taking purchasing opportunities in the vessel market, where prices are softening. Despite a weakening performance with a 64% yoy decline in EBITDA in the first quarter of FY09 as a result of the collapse in freight rates, TTA was still in a net cash position of THB5bn at end-December 2008 with net adjusted debt (adjusted lease obligation by Fitch’s standard approach) to EBITDAR of 1.1x and net debt to EBITDA of -0.5x on an unadjusted basis.
The Stable Outlook reflects Fitch’s expectation that TTA will continue its established position in the dry bulk shipping market, as well as maintain its well-balanced fleet employment, moderate financial leverage and sufficient liquidity through the industry cycles. The rating may be negatively affected if freight rates and the overall industry does not show any recovery by 2011. A rise in financial leverage, as measured by net debt to EBITDA, above 1.5x on a sustained basis (unadjusted basis is used because lease-adjusted debt may overstate its debt obligation; TTA’s long-term lease is relatively flexible and depends on market time charter rate) and/or a significant increase in secured debt would also negatively affect the rating. On the other hand, more stable cash flow generation through the industry cycles and a sustained low financial leverage would be positive for the rating.
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such 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: Somruedee Chaiworarat, Bangkok, +662 655 4762; Lertchai Kochareonrattanakul, Bangkok, +662 655 4760; Vincent Milton, Bangkok, +662 655 4755.