Bangkok--29 Apr--Moody's Investors Service
Moody's Investors Service has assigned a B1 corporate family rating to Finspace S.A. (Finspace). Moody's has also assigned a B1 senior unsecured rating to Finspace's proposed USD bond issue. The outlook for both ratings is stable. This is the first time that Moody's has assigned ratings to Finspace.
Finspace plans to use the proceeds of the bond issue for its plate mill expansion, debt refinancing, acquisition and general corporate purposes.
"Finspace's B1 rating reflects its differentiated and strong position in the niche piping market," said Ken Chan, a Moody's Vice President, adding that "its low volume and highly customized product business model allows for better profit margins than its peers."
The company's prowess is backed by a wide variety of product offerings and its in-house ability to offer one-stop shopping solutions to end-customers.
Moreover, the company minimizes the risk of margin volatility through cautious pricing, which includes back-to-back price factoring of raw material costs.
"The rating is constrained, however, by the company's small scale and fast growth, existence of related party transactions with the group's regional sales offices as well as its short operating track record in the pipe, pressure vessels, and coating business segments," commented Chan.
"Additionally, Finspace's working capital requirements are vulnerable to volatility stemming from changes in steel prices. Long production lead times for fittings and pipe products further exacerbate the pressure on working capital, especially during commodity price up-cycles," said Chan.
"The company also has weak balance sheet liquidity and high reliance on short-term bank lines. However, its projected Debt/EBITDA of around 4.0x over the next two years is appropriate for the current B1 rating," said Chan.
"Construction of the plate mill will raise the company's debt and execution risk in the next two years, before it can start reaping any financial benefits when the plate mill starts operating in 2012. However, the plate mill will integrate vertically with the company's production processes, enhance efficiency and profitability, and cut production lead times. The plate mill will allow more product customization and also help retain and protect Finspace's in-house technical know-how."
The stable outlook reflects Moody's expectation that the company will prudently carry out its business plan, further solidify its market position in the global pipe industry, and maintain adequate bank lines to mitigate the volatility in working capital.
Although near-term upward rating pressure is limited, positive rating implications may arise if the company 1) can complete its plate mill construction as planned; 2) enhance its balance sheet liquidity and lower its reliance on uncommitted working capital facilities; 3) lower its related party transactions; and 4) expand its earning base through its business model, such that Debt/EBITDA declines to less than 2.5-3.0x and EBITDA/Interest rises to 3.5-4.0x or higher.
Downward rating pressure could arise if 1) the company's plate mill experiences significant construction delays and cost overruns; 2) the company fails to implement its business plan, and thus weaken its market position in the global pipe industry; or 3) it makes any aggressive debt-funded acquisitions, such that its Debt/EBITDA rises above 4.5-5.0x and EBITDA/Interest declines to less than below 2.0-2.5x.
Finspace's rating was assigned by evaluating factors Moody's believe are relevant to the issuer's credit profile, such as 1) business risk and the competitive position of the company versus others in its industry; 2) its balance sheet and financial risk; 3) the projected performance over the near to medium term; and 4) management's track record and tolerance for risk.
These attributes were compared against those of other issuers within and outside Finspace's core industry; thus, Moody's considers Finspace's rating comparable to those of other issuers with similar credit risk.
Finspace S.A., also known as the Canadoil Group, produces specialized pipes, vessels, and fittings for oil and gas, chemical, refining, power, water, and infrastructure projects worldwide. Finspace is unique as a global company that can provide end-customers one-stop shopping integrated solutions. The Group has manufacturing facilities in Thailand, Canada, and Italy, with sales offices in Thailand, Korea, Dubai, Canada and Italy.
Hong Kong
Ken Chan
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Hong Kong
Gary Lau
Managing Director
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077