TRIS Rating Downgrades Company Rating of “SSI” to “BB+” from “BBB-”

TRIS Rating Co., Ltd. has downgraded the company rating of Sahaviriya Steel Industries PLC (SSI) to “BB+” from “BBB-” with “stable” outlook. The downgrade reflects SSI’s financial profile which is weaker than expectation due to a huge inventory impairments resulting from the high cost of slab inventory build up during the fourth quarter of 2008. As of December 2008, SSI’s inventory before provisions of hot rolled coil (HRC) and slab stood at Bt16,867 million, up substantially from Bt11,514 million at the end of September 2008. The inventory change was larger than TRIS Rating’s expectation. In addition, the rating is pressured by volatile steel prices and weak demand in both the domestic and international markets. However, the rating is supported by SSI’s leading position in the domestic market and its strong relationships with customers.

The “stable” outlook reflects TRIS Rating’s expectation that SSI will manage inventory carefully amidst the difficult market environment. The company is also expected to maintain its competitive position in the domestic steel market.

TRIS Rating reported that SSI had a net loss of Bt5,134 million in 2008 due to inventory impairment as both hot rolled coil (HRC) and slab prices declined sharply. The impairment totalled Bt5,417 million, up from Bt1,400 million in the first nine months of 2008. The loss wiped out all retained earnings, leaving a retained loss of Bt1,858 million. SSI’s operating performance in the fourth quarter of 2008 dropped sharply. Total shipments in the fourth quarter of 2008 was around 0.06 million tonnes, compared with 0.36 million tonnes in the same quarter of the previous year and 0.2 million tonnes in the third quarter of 2008. The average selling price dropped to US$755-US$765 per tonne, against US$975-US$985 per tonne in the third quarter of 2008. As average selling prices were below its costs, the gross margin in the fourth quarter of 2008 was negative at 30.8%. Total debt increased to Bt23,858 million. With weak operating performance and more debt used to purchase slab, the total debt to capitalization ratio and the fund from operation to total debt ratio worsened from 33.67% and 11.99% in 2007 to 57.86% and 3.86% in 2008, respectively. Operating income before depreciation and amortization as a percentage of sales dropped to 6.09%, the lowest in the past five years.

TRIS Rating expects that SSI’s financial profile will gradually improve in the second half of 2009 as high-cost inventory should be depleted within the second quarter of 2009. However, weak demand in key sectors, such as automobile and construction will continue to keep steel prices down. -- End

Company Rating: Downgraded to BB+ from BBB- Rating Outlook: Stable Copyright 2009, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.

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