Bangkok--12 May--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned Siam City Cement Public Company Limited (SCCC) an ‘A(tha)’ National Long-term rating and a ‘F1(tha)’ National Short-term rating. The Outlook is Stable. At the same time, the agency has assigned a ‘A(tha)’ National Long-term rating to SCCC’s upcoming THB4.0bn senior unsecured debentures due in 2013. The proceeds from the debentures will be earmarked for refinancing and working capital.
The ratings reflect SCCC’s solid market position as Thailand’s second-largest cement producer, with capacity and market shares of 26% and 27%, respectively, as well as vertical integration into aggregates and ready-mixed concrete business. SCCC’s ratings are underpinned by its solid financial position with low financial leverage and strong coverage ratio. Its strategy to focus on efficiency improvement and cost reduction through the use of alternative fuel and raw materials and the planned construction of electricity generation plant from waste heat recovery should help stabilise margins in light of weakening cement demand in 2009-2010.
SCCC has also leveraged off technical support, know-how and expertise from Holcim Ltd (Holcim, ‘BBB’/Negative), a strategic partner which holds a third of the company’s stake. SCCC also benefits from Holcim’s established sales network, with presence in over 70 countries, which helps support its exports.
However, SCCC’s ratings take into account the large supply excess of cement in Thailand with intensified price competition. Meanwhile, the twin affects from the global economic recession and the country’s sharp economic contraction will likely result in weakening cement consumption in 2009/2010, both on domestic and export sales; however, the government’s economic stimulus packages and mega infrastructure projects should help partially mitigate the risks. Other credit concerns include SCCC’s high historical dividend payout, which is a drain on cash flows, as well as its high degree of revenue concentration in one single market.
SCCC reported operating EBITDAR of THB5.2bn in 2008 from THB5.3bn in 2007. Lower sales in 2008 due to weakened demand were offset by improved margin, thanks to an increase in selling prices in both domestic and export markets. SCCC’s consolidated net debt increased to THB2.8bn at end-2008 from THB1.1bn at end-2007, owing to an increase in capex and continued high dividend payout. Despite this, adjusted net debt to EBITDAR ratio remained strong at 0.5x. SCCC is likely to maintain low financial leverage, which should be achieved by more moderate planned capex and a flexible dividend policy, in light of the weakening operating environment.
The Stable Outlook reflects Fitch’s expectation that SCCC will maintain its market position, as well as generate strong cash flows to support capex and dividend payouts, which should help maintain its financial flexibility and liquidity consistent with the current credit rating over the medium-term. A sizable increase in sales and margins, a significant increase in Holcim’s stake and explicit support, as well as a sustained positive free cash flow (post-dividend payment) could positively affect the ratings. Conversely, a sustained decline in margins, as well as substantial debt-funded investments or higher-than-expected dividend payment which leads to adjusted net debt to EBITDAR of over 2.0x on a prolonged basis could negatively impact the ratings.
Established in 1969, SCCC is the country’s second largest cement producer, with a total capacity of 14.5 million tons per annum. It is also a leading producer of ready mixed concrete in the domestic market with 57 owned plants. Apart from this, SCCC is a producer and distributor of wood replacement construction materials under the ‘CONWOOD’ brand. Holcim and the Ratanarak family, each hold about a third of total shares.
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: Lertchai Kochareonrattanakul, Bangkok, +662 655 4760; Somruedee Chaiworarat, +662 655 4762; Vincent Milton, +662 655 4759.
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