TRIS Rating affirms the company rating on Siamgas and Petrochemicals PLC (SGP) and its existing senior unsecured debenture ratings at “BBB+”. TRIS Rating also affirms the rating on its existing partially guaranteed debenture at “A+”. The debenture is partially guaranteed by Credit Guarantee and Investment Facility (CGIF) (AAA/Stable), for up to 85% of the unpaid amount of principal and interest.
At the same time, TRIS Rating assigns the rating of “A” to SGP’s newly proposed issue of up to Bt2,000 million in debentures partially guaranteed by the same guarantor, CGIF. For this issuance, CGIF will provide unconditional and irrevocable guarantees to cover up to 70% of the unpaid amount of principal and interest. SGP will use the proceeds from the new debentures for its working capital.
The ratings continue to reflect the company’s strong position as the second-largest liquefied petroleum gas (LPG) distributor in Thailand, its robust domestic distribution network, and its geographically diverse customer base. The ratings, however, are partially offset by high business risk from SGP’s operations abroad which expose the company to fluctuations in LPG prices.
TRIS Rating views that SGP’s operations performed satisfactorily for the first nine months of 2018, thanks to favorable price recovery of LPG. The average contract price for LPG was about US$589 per tonne in the third quarter of 2018, rising continuously from US$523 per tonne in the first quarter of 2018.
The financial result was better than TRIS Rating’s forecasts. SGP’s funds from operations (FFO) for the first nine months of 2018 were about Bt2.4 billion, close to our expected Bt2.5 billion per annum on average. The company’s outstanding debt rose continually due to a higher need for short-term debts to support working capital during the uptrend in LPG prices. However, the annualized FFO to total debt ratio for the first nine months of 2018 stood at 28.4%, which was still commensurate with our expectation of exceeding 20%.
RATING OUTLOOK
The “stable” outlook embeds the expectation that SGP will be able to maintain its strong position as the second largest LPG distributor in Thailand. Reliable cash flows from domestic LPG operations will partly alleviate the volatile margin of the international operations. Further, TRIS Rating also expects SGP to remain profitable in overseas trading, albeit with relatively higher susceptibility to price risk.
RATING SENSITIVITIES
A rating upgrade could happen if cash flow is larger and more stable or if the debt to capitalization ratio falls considerably from the current level. These outcomes could be achieved if SGP is able to create a stronger competitive position in China or has larger earnings contribution from its more stable business.
The ratings could be revised downward if SGP’s financial profile materially deteriorates for an extended period. This could arise if the FFO to total debt ratio falls below TRIS Rating’s expectation for a sustained period or if there are large debt-funded acquisitions which significantly jeopardize its financial profile.
As for SGP’s partially guaranteed debentures, the issue ratings reflect the creditworthiness of both the issuer and its guarantor, CGIF. The issue ratings could be revised upward or downward should there be any changes in the credit profiles of SGP or its guarantor.