TRIS Rating has assigned a rating of “BBB” to the proposed issue of up to Bt2,000 million in senior unsecured debentures of Thoresen Thai Agencies PLC (TTA). At the same time, TRIS Rating has affirmed the company rating of TTA at “BBB+” and the ratings of TTA’s existing senior unsecured debentures at “BBB”. The outlook remains “stable”. The proceeds from the new debentures are for debt refinancing a TTA’s bond which will be matured in July 2015. The ratings reflect moderate growth expectations in dry-bulk shipping and offshore oil and gas services industries, adequate competitive positions in dry-bulk shipping and offshore service segments, and business diversification. The ratings are partially offset by exposures to the cyclicality of shipping and offshore industries, inherent risks and limited records in executing acquisition strategies, and expected rise in financial leverage. Despite TTA’s capital increase in March 2015, the issue ratings are one notch below the company’s rating since the ratio of secured debts to total assets is expected to be higher than 20% due to sizable capital expenditures during 2015-2016.
The “stable” outlook reflects the expectation that TTA’s dry-bulk shipping and offshore services will continue to weather industry’s cyclicality in the medium term. TTA is expected to maintain its business risk profile in pursuing new business opportunities, as well as maintain debt to capitalization ratio below 50% and debt to EBITDA ratio below 4 times in the medium term. TTA’s ratings or outlook could be revised downward if TTA’s operations are weaker than expectation for a long period. The rating upgrade is limited at this period due to weak market outlook.
TTA is an investment holding company with four key business segments: dry-bulk shipping services, subsea engineering and drilling services in the offshore oil and gas industry, production and sales of fertilizers in Vietnam, and coal trading. TTA’s revenue for the fiscal year (FY) ended September 2014 was Bt21.4 billion and funds from operations (FFO) were Bt2.2 billion. Offshore services contributed about 60% of the EBITDA (earnings before interest, taxes, depreciation, and amortization), while shipping contributed about 28%. TTA was founded in 1982 and was listed on the Stock Exchange of Thailand (SET) in 1995. At the end of March 2015, the Mahagitsiri family owned approximately 28% of the company’s total shares.
TTA’s strong business profile reflects the company’s established operations in dry-bulk shipping and offshore services. As of March 2015, TTA operated approximately 42 dry-bulk vessels, 24 of which were owned and 18 were chartered-in. TTA’s shipping EBITDA margins over the past five years were quite fluctuated, owing largely to the volatile freight rates. However, disequilibrium in cargo demand and vessel supply has improved since 2013. Total cash operating cost per day of TTA’s shipping business had been lowered since 2012, mainly due to improved vessel standardization, the inclusions of newer vessels, and on-board maintenance policy.
TTA’s offshore business profile considers Mermaid Maritime PLC’s (MMPLC) track records and its improving performance in recent years. As of March 2015, MMPLC was 57.8% owned by TTA. MMPLC owns 12 subsea vessels and two tender drilling rigs. In addition, MMPLC’s associate owns three jack-up rigs. MMPLC’s operating margins had been under pressure in recent years due to fixed-costs from a few underutilized fleets. MMPLC is in the process of upgrading its fleet capability. The new fleets are expected to enhance the utilization rates and day rates, thus improving MMPLC’s operating margins and cash flows.
TTA’s business profile considers the limited track records of the company’s major shareholder group and certain key management positions in formulating and executing acquisitive strategies. However, the profile considers benefits from business diversification, which should help reduce cash flow fluctuations.
TTA’s operating performance was weaker than expected in the first three months of 2015. The deterioration in performance was due to a slump in dry bulk shipping rates, the low season for subsea engineering services, and TTA’s three largest subsea vessels were dry-docked. TTA’s revenue declined to Bt4.6 billion in the first three months of 2015, approximately a 7% year-on-year (y-o-y) drop. TTA recorded an operating loss in the first three months of 2015. Its operating margin (operating income before depreciation and amortization as percentage of revenue) fell to -7.9%, compared with an operating margin of 12.9% in the first three months of 2014. The company’s operating performance is expected to improve in the second quarter of 2015 since the three subsea vessels will be back in operation. However, the prolonged weakness in the global economy may keep dry bulk shipping rate low throughout the year.
As a result TTA may see ongoing losses in dry bulk shipping segment. In addition, the low price of oil may reduce the demand for subsea engineering and drilling activities that TTA performs for petroleum exploration and production (E&P) companies. These two factors could affect TTA’s operating performance and potentially have a negative effect on TTA’s credit rating.
In March 2015, TTA issued new shares through right offering, leading to increased Bt7.3 billion in the capital. The rising capital also strengthened TTA’s leverage profile as seen in the debt to capitalization ratio reducing to 27.2% as of March 2015 from 31.2% at the end of December 2014. However, the new capital is expected to be used for acquisitions or new investments, which will raise the ratio in the future.
TTA’s capital expenditures are expected at Bt24 billion in totals for 2015-2017, about two-thirds of which will be spent in 2016. TTA’s financial profile also incorporates potential debt-financed acquisitions in the future. TTA’s debt to capitalization is expected to rise and peak in 2016-2017, but the ratio is not expected to rise above 50%.
Company Rating: BBB+ Issue Ratings: TTA157A: Bt2,000 million senior unsecured debentures due 2015 BBB TTA176A: Bt2,000 million senior unsecured debentures due 2017 BBB Up to Bt2,000 million senior unsecured debentures due within 2018 BBB Rating Outlook: Stable TRIS Rating Co., Ltd./www.trisrating.com Contact: santaya@trisrating.com, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand ? Copyright 2015, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating-information/rating-criteria.html.