TRIS Rating has affirmed the company rating of Vinythai PLC (VNT) at “A-” with “stable” outlook. The rating is based on the company’s efficient and fully-integrated chlor-alkali production facility, strong financial profile, capable management team, and the support VNT receives from its principal shareholders, Solvay S.A. of Belgium (Solvay) and PTT Global Chemical PLC (PTTGC). However, these strengths are partially offset by the cyclical nature of the petrochemical industry, the fluctuations in prices of its products and feedstocks, and the uncertainty of the global economy. The rating also takes into consideration the start up of the company’s Epichlorohydrine (ECH) plant in Thailand, and its plan to invest in China. The “stable” outlook reflects the expectations that VNT will maintain its position as low-cost producer and there will be no major threats to the PVC industry. TRIS Rating expects VNT’s management team to continue its conservative financial policy and maintain sufficient liquidity at all times, especially while the firm is making new investments.
VNT is Thailand’s second-largest polyvinyl chloride (PVC) manufacturer, with a capacity of 280 thousand metric tonnes per annum (KTA), or 29% of total domestic production capacity. The company also operates a 100 KTA ECH plant. VNT’s major shareholders have extended their full support to VNT’s operation: Solvay provides technical support and an international distribution channel, while PTTGC is a long-term supplier of ethylene, a key raw material for PVC. VNT’s PVC plant is fully backward integrated, yielding higher operating margin compared with its rivals. Currently, the company has the capacity to produce PVC (280 KTA), caustic soda (366 KTA), vinyl chloride monomer (VCM; 400 KTA) and ECH (100 KTA). Portions of the caustic soda and VCM volumes that VNT produces are used internally as feedstocks to produce ECH and PVC.
In the first nine months of 2012, VNT’s sales volume comprised 206 thousand metric tonnes (KT) of PVC, 169 KT of caustic soda, 74 KT of VCM, and 28 KT of ECH. In total, the sales volume for all products in the first nine months of 2012 increased by approximately 12%, compared with the same period of last year. The increase was mainly due to the start up of the ECH plant in February 2012.
The ECH business is operated by Advanced Biochemical (Thailand) Co., Ltd. (ABT), VNT’s wholly-owned subsidiary founded in 2010. ABT is licensed to use Solvay’s Epicerol? technology to produce 100 KTA of ECH, the largest ECH plant in Solvay’s portfolio. ECH is mainly used as feedstock for epoxy resin. Epoxy resin is used to make rust-resistant coatings and has a wide range of applications in the electronics, automotive, aerospace, and renewable energy (windmill) industries. ECH’s feedstocks are glycerin, caustic soda, and hydrochloric acid. Glycerin is secured through medium-term contracts with the producers of oleochemicals, as glycerin is a by- product from the process. Caustic soda and hydrochloric acid, which are by-products from the chlor-alkali process, are sourced via captive use within the VNT Group. VNT has planned to expand its ECH production capacity to China by investing in one of Solvay’s company, which will construct a 100 KTA ECH plant in China. The budget for the China project is Bt7,200 million. In 2011-2012, the selling prices of ECH dropped significantly. This cut the expected returns for the new ECH plant. The going concern would be the execution of ECH plant in China and the prospect of ECH in Asia Pacific region. TRIS Rating expects the ECH business will gradually improve and not jeopardize VNT’s financial strength.
VNT’s financial profile remained strong, supported by solid operating cash flow and low leverage. In the first nine months of 2012, revenue increased by 17% year-on-year (y-o-y) to Bt12,754 million. The operating margin before depreciation and amortization remained high at 19.9% in the first nine months of 2012. The high margin reflects the benefits VNT received from being backward integrated, derived from the widened spread between prices of PVC and Ethylene plus the yield of caustic soda (by-product from the chlor-alkali process). In the first nine months of 2012, the company’s funds from operations (FFO) reached Bt2,546 million. Total debt increased to Bt3,000 million at the end of September 2012. VNT used more debt to fund the construction of the ECH plant in Thailand. The company has continued to report strong cash flow protection, as illustrated by the high levels for the FFO to total debt ratio, and the earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio. The ratio of total debt to capitalization rose at the end of September 2012 compared with the level at the end of 2011; however, the ratio remains low. VNT’s low level of leverage provides flexibility and serves as a cushion for the company, especially during an economic slowdown. The ratio is expected to rise moderately in the medium term as the company expands. VNT serves as the regional center of the Solvay Group. Thus, VNT will be the investment arm to capture PVC and ECH business opportunities.
Vinythai PLC (VNT)
Company Rating: A-
Rating Outlook: Stable
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