TRIS Rating has assigned a rating of “A+” to the proposed issue of up to Bt3,700 million in senior debentures of Indorama Ventures PLC (IVL). The assigned issue rating replaces the rating of IVL’s proposed issue of up to Bt3,000 million announced on 4 March 2014 as the company decided to increase the bond size. 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 increase in the bond size has no effect on the ratings as the proceeds from the new debentures will be used for debt refinancing that have already been taken into the rating consideration. The ratings reflect the company’s strong position as a leading worldwide producer in the polyester value chain, cost competitiveness, reliable production base due to vertical integration, plus its geographically diverse customer base which spans 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, an oversupply of purified terephthalic acid (PTA) and polyethylene terephthalate (PET) caused by a new capacity and uncertain global economy, plus its investment appetite in search of growth. The debt-financed investments have strained the company’s balance sheet. The “stable” outlook is based on TRIS Rating’s anticipation that the industry margin will gradually recover from the current level. In addition, IVL will be able to demonstrate more stable cash flow generation and maintain sufficient liquidity to be a cushion against the volatility inherent in the petrochemical industry.
IVL 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. Currently, the Lohia family holds a 66.4% stake in IVL. The company invests mainly in businesses along the polyester value chain. As of 31 December 2013, IVL’s total installed capacity was 6,942 thousand tonnes per annum (KTA), comprising 550 KTA of monoethylene glycol (MEG) equivalent, 1,761 KTA of PTA, 3,569 KTA of PET, and 1,063 KTA of polyester fiber equivalent. In the polyester value chain, PTA and MEG are the major feedstocks used in producing PET and polyester fiber.
At present, IVL’s facilities are located in 15 countries across four continents: Asia, Europe, North America, and Africa. IVL’s business model of fully vertical integration and diversified presence around the globe should provide some cushion and a competitive advantage to mitigate the risk associated with petrochemical industry. However, the influx of new PTA plants in China and fragile global economy have raised a concern of intensified competition and pressure on the company profitability.
IVL’s financial profile has remained under pressure because the polyester value chain is currently in an industry down cycle. The industry outlook is expected to improve in the medium term. Uncompetitive plants have been forced to shut down, which will help balance demand and supply. In 2013, IVL reported total revenue of Bt229,120 million, an 8.7% increase, mainly due to higher sales volumes. However, operating income before depreciation and amortization, as percentage of sales, declined from 5.7% in 2012 to 5.0% in 2013. The drop was mainly due to thin margins for all products, especially PTA business in Asia that remained pressured by an oversupply. In addition, IVL’s MEG plant was shut down for maintenance for almost two months in 2013. IVL’s profitability, in terms of earnings before interest, tax, depreciation, and amortization (EBITDA) per tonne of production volume, dropped from US$86 per tonne in 2012 to US$79 per tonne in 2013. The company generated funds from operations (FFO) of Bt10,389 million in 2013 higher than TRIS Rating’s expectation as the company recorded an insurance claim worth approximately Bt1,800 million. The EBITDA interest coverage ratio was 3.1 times in 2013.
Total debt at the end of 2013 was Bt85,266 million increased from Bt80,630 million at the end of 2012. The total debt to capitalization ratio decreased from 58.8% at the end of 2012 to 58.1% at the end of 2013. IVL has continued with its existing expansion projects, including a capacity expansion at its PTA plant in Rotterdam, Netherlands. For these expansions, the company has budgeted approximately Bt18,000 million capital expenditures over 2013-2016. The expansions will boost IVL’s total capacity to approximately 8,000 KTA by 2016. In addition, TRIS Rating’s base case scenario has incorporated the acquisition budget of Bt16,000 million in 2014. IVL announced the acquisition of PHP Fibers GmbH (PHP) in February 2014. PHP produces high-tenacity polyamide and polyester filament yarns, which are high value added (HVA) products. IVL will investment in PHP for 80% of total shareholding. This acquisition was in line with its interest in adding proportion of HVA products to its portfolio. Looking forward, the company’s debt will be further increase to satisfy its acquisition, however, TRIS Rating expects that IVL will have a deleverage plan to be in line with the company’s policy to maintain the ratio of net interest bearing debt to equity less than 0.8 times. In terms of liquidity, the company’s FFO is expected to be over Bt11,000 million in 2014, once the company’s new capacity is in operation. This level of FFO is sufficient to repay debt in accordance with the repayment schedule. Approximately Bt3,975 million in debt will come due in 2014, while Bt7,966 million will be due in 2015. In addition, IVL also has an unused credit line of approximately Bt20,000 million. This credit line will serve as a cushion for the company.
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