TRIS Rating Affirms Company Rating of “VNT” at “A-” With “Stable” Outlook

TRIS Rating has affirmed the company rating of Vinythai PLC (VNT) at “A-” with “stable” outlook. The rating is based on VNT’s efficient and fully-integrated production facility; strong financial profile; capable management team; and support from principal shareholders, Solvay S.A. of Belgium, PTT Chemical PLC (PTTCH), and Charoen Pokphand Group (CP Group). However, these strengths are partially offset by the cyclical nature of the petrochemical industry, extreme price fluctuations, and softer demand in the face of the economic downturn.

The “stable” outlook reflects the expectations that VNT will maintain its low-cost position and there will be no major threats to the PVC industry. TRIS Rating expects VNT’s management to continue the conservative financial policy in the intermediate to long term.

TRIS Rating reported that VNT is Thailand’s second largest polyvinyl chloride (PVC) manufacturer, with capacity of 280,000 metric tons per annum (mtpa), or 28% of total domestic capacity. Major shareholders have extended full support to VNT’s operation: Solvay provides technical support and an international distribution channel, PTTCH supplies ethylene, and CP Group is a key customer. VNT’s PVC plant is fully backward integrated, yielding an operating margin premium over rivals. For the first nine months of 2008, VNT’s operating margin improved significantly, rising to 19.3% compared with 11.8% in the same period of 2007. However, the sharp drop in petrochemical prices in the fourth quarter of 2008 caused an inventory loss and slashed demand. As a result, the operating margin fell to 15.8% for the full year. The margin recovered to 21.8% in the first quarter of 2009 as the price of ethylene, a key raw material, declined significantly while the by-product price, caustic soda, remained high. The economic crisis which began in the third quarter of 2008 has reduced consumption worldwide. The recessionary effect is one of the most severe factors and may linger for some time. PVC consumption is expected to revive as a result of the government economic stimulus package. However, the effectiveness of the stimulus package remains to be seen.

VNT’s financial profile remained very strong, supported by operating cash flow and low leverage. Sales volume in 2008 decreased 4% compared with the previous year. Thanks to higher average product prices, sales revenue increased by 5% versus the prior year. During the first quarter of 2009, VNT could boost its export sales to substitute the decline in domestic demand. Total sales volume increase 7% year-on-year (y-o-y) for the first three months of 2009. However, the sharp drop of PVC and VCM (vinyl chloride monomer) average prices around 20%-40% resulted in a 12% y-o-y decline in sales value. With an improvement in operating margin, VNT could for the first time exceed Bt2,000 million in funds from operations (FFO) in 2008 and reported Bt461 million FFO in the first quarter of 2009. As there was no additional debt incurred during the last two years, the company continued to report a strong cash flow protection, as illustrated by rising FFO to total debt and high earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratios. The ratio of total debt to capitalization decreased to 10.5% at the end of March 2009. This low leverage level reflects a very conservative financial management yielding a cushion for the company, especially during the economic crisis.

TRIS Rating, however, said that VNT has a growth strategy and will enter the investment cycle. VNT is studying some business expansion plans which may require additional debt funding. TRIS Rating will closely monitor the investment plan and expects the company to properly manage its finances to maintain strong liquidity. -- End

Company Rating: Affirmed at A- 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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