TRIS Rating Co., Ltd. has assigned the rating of “A-” to the proposed issue of up to Bt1,500 million in senior debentures of Khon Kaen Sugar Industry PLC (KSL). At the same time, TRIS Rating has affirmed the company and current issue ratings of KSL at “A-” with “stable” outlook. The new issue rating replaces the “A-” rating previously assigned by TRIS Rating on 30 November 2011 for the issue of up to Bt1,000 million in senior debentures due within 2014 as KSL has decided to increase the issue size by Bt500 million. The Bt500 million increase in the issue size for senior debentures would have no impact on the ratings and outlook of KSL. The proceeds from the new debentures will be used to repay loans and to fund planned capital expenditures.
The “A-” ratings reflect KSL’s long track record in the Thai sugar and sugarcane industry, diversification into sugar-related businesses, and efficient sugar mill operations. The ratings also take into consideration the company’s expansion plan, the regulatory and operational risks of its sugar operations in Lao PDR and Cambodia, and the volatility of sugarcane supply and sugar prices. The “stable” outlook reflects TRIS Rating’s expectation that KSL will maintain its market position in the Thai sugar industry. The sugarcane plantations and sugar mills in Lao PDR and Cambodia are expected to break even in FY2012, while the new sugar complex in Bo Ploy should strengthen KSL’s sugarcane procurement ability. The company is expected to maintain a healthy financial position to accommodate the high business risk associated with is foreign operations.
TRIS Rating reported that KSL is one of the leading sugar producers in Thailand, established in 1945 by the Chinthammit family and associates. Currently, the Chinthammit family collectively holds 68% of the company’s shares. The company owns and operates four sugar plants in Khon Kaen, Kanchanaburi, and Chonburi provinces, with a combined cane crushing capacity of 64,000 cane tonnes per day. During the last five years, the KSL Group has been able to procure 4-5 million tonnes of sugarcane per year and produce an average of 500,000 tonnes of sugar per year. For the 2010/2011 production period, the KSL Group produced 622,330 tonnes of sugar in Thailand and was ranked number five with 6.44% market share, following the Mitr Phol Group (19.34%), the Thai Roong Ruang Group (16.67%), the Thai Ekkalak Group (11.27%), and the Wangkanai Group (7.82%). The company’s crushing yield for the 2010/2011 growing season, based on standard sugarcane, was 91.01 kilograms (kg.) per cane tonne, better than the industry average of 89.58 kg.
Since 2006, KSL has expanded along the sugar value chain to maximize the utilization of sugarcane. The expansions into related businesses include electricity generation and ethanol production. During the 2007 to 2009 fiscal year (FY), revenue from the energy business (ethanol and electricity) accounted for an average of 10% of total sales, while the energy business contributed an average of 29% of total net profit. In FY2010, revenue from the energy business contributed 8.85% of total sales, while contributing 170.57% of total net profit, due to losses in derivative contracts from the sugar business.
KSL’s sugar plants in Lao PDR and Cambodia started commercial production in the 2009/2010 production period. Combined sugarcane procurement for both plants was 300,299 tonnes in the 2010/2011 season. Sugarcane production in these two countries was lower than expectation due to the lack of skilled labor and difficulties in farm management. All raw sugar produced from these two plants is exported to the European Union (EU). KSL expects the sugar production of these two plants to reach a break-even level in the 2011/2012 period.
In order to strengthen its sugarcane procurement ability, KSL is relocating and then expanding a new sugar complex in Bo Ploy, Kanchanaburi province, with an investment cost of Bt7,250 million. The new sugar complex consists of a sugar plant, an ethanol plant, and a power plant. The first phase of the project started in the 2010/2011 season and the second phase will be in the 2011/2012 season. The company plans to invest in another project in Loei province, comprising a sugar plant and a power plant. The total investment is expected to be Bt3,800 million. The project is scheduled for operation in the 2013/2014 season.
For the first nine months of FY2011 ending July 2011, total sales grew by 28% from the same period in the previous year to Bt12,511 million. KSL’s net profit for the first nine months of FY2011 also increased, rising to Bt1,484 million, up by 494% from the same period in the previous year. The sharp increase was due to lower losses from derivative contracts, higher selling prices, and higher sales volume.
As of July 2011, total debt increased to Bt13,074 million, but the total debt to capitalization ratio was relatively flat at 54.07%%, compared with 53.81% in October 2010.
TRIS Rating said, worldwide sugarcane production volume and sugar prices are both very volatile. For the 2010/2011 season, sugarcane production in Thailand hit a record high at 95.38 million tonnes owing to the increase in planting area, improved planting yield, and favorable weather. The world raw sugar price in January 2011 reached a high of 36.11 cents/pound (lb), due to decreased sugarcane production in Australia. The price recently eased and has hovered around 23-25 cents/lb because cane production in Thailand, India, Russia, and European countries is expected to increase. The International Sugar Organization forecasted that surplus of world sugar balance for 2011/2012 to reach 4.46 million tonnes, up from 1.9 million tonnes in 2010/2011. The increasing risk of economic slowdown in European countries also put the sugar price under pressure. For Thailand, about 1% of total sugarcane plantation area was flooded and sugarcane volume is expected to remain high at 99.5 million tonnes in 2011/2012 season. -- End
Company Rating: Affirmed at A- Issue Ratings: KSL12NA: Bt500 million senior debentures due 2012 Affirmed at A- Up to Bt1,500 million senior debentures due within 2014 A- Rating Outlook: Stable
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