Bangkok--18 Aug--Fitch Ratings
Fitch Ratings (Thailand) Limited has today assigned a National Long-term rating of ‘A(tha)’ to Siam Cement Public Company Limited’s (SCC, ‘A(tha)’/Stable/‘F1(tha)’) THB5.0bn new unsecured and unsubordinated debentures No.2/2010 due 2014. The proceeds will be used to refinance the company’s maturing debentures.
SCC’s ratings reflect its good revenue diversification, leading position in each business segment, extensive and long-established distribution channels and strong brand recognition in the domestic market. The ratings are also supported by the group’s relatively strong cash flow generation and solid track record of its senior management. SCC’s financial flexibility is further supported by its strong access to the local debt capital market.
The ratings also reflect SCC’s lower capex in 2010-2011 compared to 2008-2009 as the second naphtha cracker and some of its downstream projects are completed. However, the ratings have taken into account the weak operating conditions in the petrochemical business during 2010-2011, caused by new capacity from Middle East and China as well as higher naphtha price, resulting in weak petrochemical spread margins.
In H110, SCC reported an operating EBITDAR (pre-dividend income) of THB19.6bn, down 3.7% yoy, due to margins pressure brought on by the global petrochemical supply influx. SCC’s EBITDAR margin (pre-dividend income) declined to 13% in H110 from an average of 17% in 2009. Including dividends from associates, its EBITDAR declined by 6.3% yoy to THB21.1bn in H110. SCC’s net debt increased to THB129.5bn at end-H110 from THB122.0bn at end-2009, driven by the weakened cash flow from operation as a result of lower petrochemical margins and higher working capital to support the start up of the second naphtha cracker. As a result, SCC’s net adjusted debt to last-12-month EBITDAR (including dividend income) weakened to 3.0x at end-H110 from 2.8x at end-2009.
SCC’s earnings are expected to continue to be affected by the sharp increase in the global petrochemical supply in 2010- 2011; however, Fitch anticipates that the lower capex and the improving cash flow generation from its cement and paper business should provide SCC with enough financial flexibility to weather the down cycle in the petrochemical business. Although SCC’s financial leverage is expected to remain above 3.0x at end-2010, it will likely decline to the range of 2.5x — 3.0x by end-2011 due to lower capex as well as stabilising petrochemical margins.
The Stable Outlook 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. However, Fitch notes that margin declines or sustained high financial leverage could trigger negative rating actions. 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.
Contacts:
Primary Analyst
Pimrumpai Panyarachun
Associate Director
+66 2655 4752
Fitch Ratings (Thailand) Limited
Wave Place 13th Fl., Wireless Road, Lumpini, Patumwan,
Bangkok 10330, Thailand
Secondary Analyst
Somruedee Chaiworarat
Associate Director
+66 2655 4762