TRIS Rating Says Advance Agro’s Rating has No Immediate Impact from Cash Tender Offer of US$ Notes

TRIS Rating Co., Ltd. said today that the announcement by Advance Agro PLC (AA) of cash tender offer and consent solicitation for 51.02% of its outstanding 11% senior notes due 2012 (US$ notes), worth US$73.50 million, has no immediate impact on the company’s rating or outlook. Tender prices will be in the range of US$980-US$1,000 per US$1,000 principal amount. If the tender process succeeds, the company will eliminate substantially all of the restrictive covenants in the indenture of the notes. AA plans to refinance the US$ notes with Thai baht bond and cash flow from operations. The company’s leverage and debt service coverage ratios could slightly improve from the current levels since the refinancing cost is expected to be lower than the 11% rate on the existing US$ notes.

TRIS Rating, however, said that the operating performance of AA began to recover in the second quarter of 2009 but its liquidity remains tight. As of June 2009, the company’s debt to capitalization ratio was 48.26%. AA’s outstanding debts were Bt11,080 million. The 11% notes accounted for around 48% of total outstanding debt while short-term borrowings (including the current portion of long-term loans) accounted for around 44% of total debt. Most of the short-term borrowings were trade finance. As of June 2009, the company reported a cash balance of Bt947 million. Due to its relatively high level of short-term borrowing and relatively volatile operating environment, there is a possibility that the company might breach some financial ratio covenants in its bank loan agreements since the cushion is relatively thin. However, AA plans to get a waiver from the bank in advance and the possibility that the company will get the waiver is high.

Currently, TRIS Rating has assigned the “BBB” company rating with “stable” outlook to AA. -- End

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