TRIS Rating has assigned the rating of “A+” to the proposed issue of up to B7,100 million in senior unsecured debentures of Mitr Phol Sugar Corporation Ltd. (MPSC). At the same time, TRIS Rating has affirmed the company rating and the current senior unsecured debenture ratings of MPSC at “A+”. The outlook remains “stable”. The “A+” ratings reflect the company’s leading market position in the sugar industry in the Asia Pacific region, its well-accepted brand name, efficient sugar mill operations, and its diversified sources of income. The ratings also take into consideration the low sugar prices and the regulatory and operational risks in its sugar operations abroad, as well as the volatility of the supply of sugarcane.
The “stable” outlook reflects TRIS Rating’s expectation that MPSC will maintain its leading position in both the Thai and Chinese sugar industries. MPSC’s diversified sources of income will help MPSC weather the current industry downturn. The downside factor for MPSC’s ratings are a prolonged fall in sugar prices and the resultant drop in MPSC’s operating margin. Any large, debt-funded investments that would weaken the debt to capitalization ratio for an extended period would also be a negative factor for MPSC’s credit ratings. The credit upside for MPSC’s rating is limited as long as sugar prices remain low.
MPSC was established in 1946 by the Vongkusolkit family. The Vongkusolkit family collectively holds 100% of the company’s shares through Mid-Siam Sugar Co., Ltd. MPSC owns and operates sugar mills in Thailand, China, the Lao PDR, and Australia. For the 2014/2015 growing season, MPSC produced 3.97 million tonnes of sugar across all its locations.
MPSC has long been the leader in the Thai sugar and sugarcane industry. In the 2014/2015 growing season, MPSC’s six sugar mills in Thailand produced 2.3 million tonnes of sugar, earning MPSC the highest market share (20.4%) in the industry, based on production volume. In China, MPSC owns and operates seven sugar mills, which produced 1.06 million tonnes of sugar in the 2014/2015 season. The company remains the second-largest sugar producer in China, with an 8.7% market share. MPSC’s sugar mill in the Lao PDR produced 0.04 million tonnes of sugar in the 2014/2015 season while its sugar mill in Australia, MSF Sugar (MSF), produced 0.56 million tonnes.
In 2014, MPSC’s total sales were Bt89,378 million. The sugar segment accounted for 80% of MPSC’s revenues. Sugar production in Thailand comprised 44% of total revenues while sugar production in China made up 29%. The operations in the Lao PDR and Australia contributed 7% of total revenues.
Apart from producing sugar, MPSC has expanded along the sugar value chain to maximize the utilization of sugarcane. MPSC’s related businesses include generating electricity, producing ethanol, manufacturing wood substitute material and paper. MPSC has gradually expanded its production capacities for ethanol and electricity. At the end of 2014, MPSC’s ethanol plants had a production capacity of 974,500 liters per day. MPSC’s electricity generating plants have a combined capacity of 442.8 megawatts (MW). In 2014, the power and ethanol segments contributed about 15% of MPSC’s revenues. MPSC is planning to develop more bagasse-fired power plants during 2015-2016. The new plants will add 126 MW of power generating capacity.In addition, by 2020, MPSC aims to have 200 MW of new electricity generating capacity, all of it producing electricity from alternative fuels.
Sugar prices worldwide continued to dive in 2015. Global sugar supply continued to exceed demand for the sixth consecutive year in the 2014/2015 growing season according to The United States Department of Agriculture (USDA). In addition, the depreciation of Brazilian real against the US dollar has put additional pressure on sugar prices. Despite the low price environment, MPSC’s performance was acceptable for the first half of 2015 due to its diversification. Total revenue grew to Bt48,119 million in the first half of 2015, a 7.4% increase over the same period of the prior year. The growth in revenue was mainly driven by a 34.4% rise in the volume of sugar sold in China. MPSC’s profitability improved in the first six months of 2015. MPSC’s ratio of operating income before depreciation and amortization to sales, including gains from its futures contracts, improved to 21.1% in the first six months of 2015, compared with 19.2% in the same period of the prior year. The improvement was mainly attributable to a recovery in MPSC’s sugar operations in China. The sugar business in China improved significantly because the Chinese government lowered the cost of cane by 9% while the domestic selling prices recovered noticeably. The average selling price rose by 8.8% in the first six months of 2015, compared with the average selling price in 2014 because of the drop in sugar production in China caused by poor weather. MPSC’s sugar business in Thailand reported a poor operating margin in the first half of 2015. The average selling price fell by 7% in the first six months of 2015 compared with the same period of the prior year. The power and ethanol business in Thailand continued to be healthy. The average selling price of ethanol in the first six months of 2015 was flat compared with the average price in 2014 even though the oil price plunged. The particle board also reported stronger margin due to low raw material cost. Earnings before interest, tax, depreciation, and amortization (EBITDA) grew by 13.2% to Bt10,804 million in the first half of 2015. MPSC’s EBITDA interest coverage ratio was acceptable at 6.0 times during the current industry down cycle. The funds from operations (FFO) to total debt ratio remained adequate at 19.1% in 2014 and 21.5% (annualized from the trailing 12 months) in the first half of 2015.
MPSC’s financial leverage is moderate. The total debt to capitalization ratio increased to 51.0% as of December 2014, from 49.0% as of December 2013. MPSC plans capital expenditures of Bt6,000-Bt8,000 million per year during 2015 and 2016. MPSC’s financial performances will stay soft as long as the current sugar industry downturn continues. EBITDA is expected to be Bt12,000-Bt13,000 million per year during low sugar prices. MPSC’s cash flow from operations is sufficient to fund its planned capital expenditures and pay an annual dividend. As a result, MPSC’s financial leverage and cash flow protection are projected to remain at acceptable levels.
The sugar industry continues to grapple with low sugar prices. USDA projected sugar production will decline by 0.5% in the 2015/2016 growing season to 173.4 million tonnes while sugar consumption will increase by 1.7% to 173.4 million tonnes. Supply and demand are expected to balance after six years of surplus. However, demand will be affected by economic slowdown worldwide.
Company Rating: A+ Issue Ratings: MPSC15OA: Bt1,000 million senior unsecured debentures due 2015 A+ MPSC165A: Bt600 million senior unsecured debentures due 2016 A+ MPSC16OA: Bt1,000 million senior unsecured debentures due 2016 A+ MPSC16OB: Bt3,500 million senior unsecured debentures due 2016 A+ MPSC175A: Bt600 million senior unsecured debentures due 2017 A+ MPSC185A: Bt700 million senior unsecured debentures due 2018 A+ MPSC18OA: Bt2,150 million senior unsecured debentures due 2018 A+ MPSC199A: Bt900 million senior unsecured debentures due 2019 A+ MPSC20OA: Bt1,000 million senior unsecured debentures due 2020 A+ MPSC20OB: Bt1,850 million senior unsecured debentures due 2020 A+ MPSC219A: Bt2,000 million senior unsecured debentures due 2021 A+ MPSC21OA: Bt2,000 million senior unsecured debentures due 2021 A+ MPSC22OA: Bt2,000 million senior unsecured debentures due 2022 A+ MPSC233A: Bt2,500 million senior unsecured debentures due 2023 A+ MPSC249A: Bt3,200 million senior unsecured debentures due 2024 A+ MPSC256A: Bt2,400 million senior unsecured debentures due 2025 A+ MPSC186A: RMB126 million senior unsecured debentures due 2018 A+ Up to Bt7,100 million senior unsecured debentures due within 2025 A+ Rating Outlook: Stable
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