Bangkok--16 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed The Siam Cement Public Company Limited’s (SCC) National Long-term rating at ‘A(tha)’ and National Short-term rating at ‘F1(tha)’. The Outlook on the Long-term rating is Stable. At the same time, Fitch has affirmed SCC’s outstanding senior unsecured debentures at ‘A(tha)’ and assigned SCC’s new senior unsecured debentures No.1/2010, amounting up to THB10bn and due 2014, a rating of ‘A(tha)’. The proceeds from the new issue will be used to refinance SCC’s maturing debentures.
The affirmation of SCC’s ratings reflects its leading position in each business segment, its good revenue diversification, cost competitiveness, extensive distribution channels, strong brand recognition in the domestic market and the solid track record of senior management. The ratings also reflect the group’s relatively strong cash flow generation and a less aggressive capex plan during 2010-2011. The group’s financial flexibility is further supported by its strong access to the local debt capital market. However, the ratings also take in to account the expected margin pressure in the petrochemical business driven by an anticipated supply influx from the Middle East, increasing raw material prices, and the continuing large excess capacity in the domestic cement and paper markets. Other key credit concerns include the effect of the Thai baht’s appreciation against the US dollar on SCC’s export revenue and the impact of the court suspension of projects at the Map Ta Phut industrial zone.
SCC’s earnings and financial leverage in 2009 were better than expected, due to cost-control measures, lower raw material prices, and stronger-than-expected demand from China. SCC’s EBITDAR (including dividends from associates) grew 17% y-o-y to THB45.1bn in 2009. Although capex remained high in 2009, SCC’s financial leverage (measured by net adjusted debt to EBITDAR) declined to 2.7x at end-2009 from 3.1x at end-2008, due to the stronger-than-expected EBIDTAR and lower dividend payment.
Although the cement and paper divisions’ earnings are expected to improve due to a recovery in domestic demand and increased capacities, the chemical division’s earnings are expected to weaken and cause SCC’s overall earnings to deteriorate in 2010. However, cash outflow for capex is expected to decline to a range of THB15bn-THB24bn per annum in 2010-2011 from THB34bn-THB40bn per annum in 2008-2009.
The Outlook Stable reflects the expectation that SCC’s strong market position and large cash flow base should provide sufficient liquidity and financial flexibility consistent with the current rating level over the medium term. Fitch notes that margin declines, or sustained high financial leverage, could trigger negative rating action. Meanwhile, stronger-than-expected cash flow generation, which could help reduce the company’s financial leverage to 2.5x or below on a sustained basis, would have a positive impact on SCC’s ratings.
Applicable criteria, “Corporate Rating Methodology”, dated November 24, 2009, are available on Fitch’s website at www.fitchratings.com.
Contacts: Pimrumpai Panyarachun, Somruedee Chaiworarat, Vincent Milton, Bangkok, Tel: +662 655 4755.
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.
Additional information is available at www.fitchratings.com.
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK:HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE VAILABLE ON THE AGENCY'S PUBLIC WEBSITE '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.