TRIS Rating Co., Ltd. has assigned a rating of “A+” to the proposed issue of up to Bt10,000 million in senior debentures of Indorama Ventures PLC (IVL). At the same time, TRIS Rating has affirmed the company rating of IVL and the ratings of its current senior debentures at “A+”. The outlook remains “stable”. The proceeds from the new debentures will be used for IVL’s debt refinancing, working capital, acquisitions, and expansion. The ratings reflect the company’s strong position as a leading worldwide producer in the polyester value chain, its cost competitiveness and reliable production base due to vertical integration, plus its geographically diverse customer base spanning the globe. The ratings also take into consideration the capability and experience of the management team as well as IVL’s access to key technologies. However, the ratings are constrained by the volatile nature of the petrochemical industry, IVL’s sizable investment in search of target growth, and the uncertain global economy. The “stable” outlook reflects the expectation that IVL will be able to sustain its ability to generate a reliable stream of cash on benefit from being integrated along the polyester value chain. The company is also expected to maintain its financial strength and sufficient liquidity to mitigate the volatility inherent in the petrochemical industry.
TRIS Rating reported that IVL, formerly named Beacon Global Co., Ltd., was established by the Lohia family on 21 February 2003 as a holding company. IVL was listed on the Stock Exchange of Thailand (SET) on 5 February 2010, diluting the shareholding of the Lohia family from 92.9% to 68.7% at present. IVL’s headquarters is located in Bangkok, Thailand. The company invests mainly in businesses along the polyester value chain, comprising production of purified terephthalic acid (PTA), polyethylene terephthalate (PET), and polyester fiber and yarn. Currently, IVL’s total installed capacities (including capacity held in joint ventures) are 6,946 thousand tonnes per annum (KTA), comprising 2,452 KTA of PTA, 3,582 KTA of PET, 600 KTA of polyester fiber and yarn, 229 KTA of bi/mono-component fiber, and 83 KTA of recycling polyester. PTA is a major feedstock in the production of PET and polyester. PET is used to produce a wide range of packaging for beverages, food, personal and home care products, pharmaceuticals, as well as other consumer and industrial products. Polyester products cover a broad range of uses across many industries and applications in industries such as apparel, home textiles, non-wovens, technical textiles, and the automotive. The growth prospects for PET and polyester fiber are sound, because their properties allow these materials to substitute for traditional materials. PET is substituted for glass and aluminum in packaging, while polyester fiber and yarn are substituted for cotton fiber and yarn. PET and polyester fiber are desirable due to their relatively superior characteristics, recyclability, and less cost. These properties help to sustain the demand for PET and polyester fiber and yarn during economic downturns.
IVL’s experience in the polyester value chain dates back in 1995, when Indorama Polymers PLC (IRP) started a PET plant in Lopburi province (Thailand). The company’s strategy aimed to be a global leader in polyester value chain businesses. During 2006-2010, IVL’s assets more than tripled through the consolidation of related operating companies, brown field acquisitions, and greenfield projects. The succession of its own project developments were the commercial operations of Orion Global in Lithuania, in 2006, and Alphapet in the US, in 2009. Both are PET manufacturing plants. In 2011, IVL’s assets doubled from the 2010 level. IVL acquired companies in the US, Mexico, Poland, China, Indonesia, and Germany, spending approximately Bt24,000 million, which makes IVL the world’s largest PET producer. The company performance after the acquisitions will be closely monitored.
At present, IVL’s facilities are located in 15 countries across three continents: Asia, Europe, and North America. In addition, the company has a PET greenfield project under construction in Nigeria, Africa. IVL’s successful growth record is owed in part to its low-cost acquisition of distressed assets, intense management commitment to production efficiency, and ability to leverage the various key technologies in the polyester value chain. In addition, IVL’s presence in key geographic regions enhances its access to a worldwide customer base, which in turn yields high production utilization. The reliability of IVL’s production is supported by two factors: feedstock procurement via its captive use, and virtual integration through co-location with major suppliers. These factors enable IVL to offer competitive pricesto customers due to lower production and logistics costs. IVL’s regional capacities help overcome trade barriers in some competitive markets such as North America and Europe. Moreover, the engagement in both PTA and polyester products helps boost and stabilize its profitability.
As IVL’s products are categorized as commodity products, the company is exposed to the risk associated with the cyclical nature of the petrochemical industry as well as fluctuations in commodity prices. New production capacity and an uncertain global economy may negatively impact demand, selling prices, and margins. However, IVL’s business model, producing PTA and its derivative products, should provide some cushion against the fluctuations. Being vertically integrated yields benefits, not only to secure feedstock sources for PET and polyester products, but also to lower logistics costs and lower fixed costs through the sharing of common facilities.
TRIS Rating said, IVL’s financial strength is considered moderate. Total revenue increased by 63.1% from Bt96,858 million in 2010 to Bt186,096 million in 2011. The increase reflected a rise in average selling price and higher sales volumes as a result of asset acquisitions, mostly, in the first quarter of 2011. Operating income before depreciation and amortization as percentage of sales declined from 12.8% in 2010 to 8.2% in 2011. The drop was mainly due to relatively higher selling prices. The company’s profitability in terms of earnings before interest, tax, depreciation and amortization (EBITDA) per tonne of sales volume slightly dropped from US$136 per tonne in 2010 to US$128 per tonne in 2011. The drop was also partly due to the squeeze spread of PTA product, especially in Asia, which reflected an oversupply of PTA, and shutdown of plants in North America due to Tornado and in Thailand due to severe flood in late 2011. In 2011, the company generated funds from operations (FFO) of Bt14,022 million, a 25.1% rise. The earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio declined from 11.3 times in 2010 to 7.6 times in 2011, reflecting higher interest expenses. However, the company’s liquidity profile is sound. At the end of December 2011, the company maintained its cash balance of Bt17,706 million and had an available credit line of approximately Bt15,800 million spread over its subsidiaries to support its working capital.
IVL’s investments during 2011 weakened its balance sheet. Total debt increased from Bt32,068 million in 2010 to Bt61,346 million in 2011, which included debt-financed investment, consolidated debt of those invested subsidiaries and needed more working capital financing. However, the equity base grew through the exercise of transferable subscription rights (TSR) worth Bt17,224 million in the first quarter of 2011. As a result, the total debt to capitalization ratio slightly increased from 49.9% at the end of 2010 to 51.1% at the end of 2011. The company has pursued its plans to invest during 2012-2014 to achieve an overall capacity of 10,000 KTA. In January 2012, IVL acquired 100% of FiberVisions Holding LLC, paying US$181 million (Bt5,693 million). IVL recently announced that it will acquire 100% of Old World Chemical (OWC) and PT Polypet Karyapersada for approximately US$815 million (Bt25,265 million). Both transactions will be financed with debts worth about 70% of the purchase price, while the remaining 30% will be funded by operating cash flow. The total debt to capitalization ratio is not expected to exceed 60% in the short to medium term for further acquisitions, said TRIS Rating. — End
Company Rating: Affirmed at A+ Issue Ratings: IVL160A: Bt210 million senior debentures due 2016 Affirmed at A+ IVL160B: Bt2,690 million senior debentures due 2016 Affirmed at A+ IVL180A: Bt98 million senior debentures due 2018 Affirmed at A+ IVL180B: Bt1,302 million senior debentures due 2018 Affirmed at A+ IVL210A: Bt37 million senior debentures due 2021 Affirmed at A+ IVL210B: Bt3,163 million senior debentures due 2021 Affirmed at A+ Up to Bt10,000 million senior debentures due within 2022 A+ Rating Outlook: Stable
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