TRIS Rating affirms the company rating of Siamgas and Petrochemicals PLC (SGP) and its current senior unsecured debenture ratings at “BBB”. At the same time, TRIS Rating assigns the rating of “A” to SGP’s newly proposed issue of up to Bt2,000 million in debentures partially guaranteed by Credit Guarantee and Investment Facility, a trust fund of the Asian Development Bank (CGIF). CGIF was rated “AAA” by TRIS Rating. Under the terms of the guarantee agreement, CGIF agrees to provide unconditional and irrevocable guarantees to cover up to 85% of the principal amount and 85% of the unpaid interest. The proceeds from the new debentures will be used for its working capital.
The ratings continue to reflect the company’s strong position as the second-largest liquefied petroleum gas (LPG) distributor in Thailand, its robust domestic distribution network, and its geographically diverse customer base. The ratings, however, are partially offset by high business risk from SGP’s operations abroad which expose the company to fluctuations in LPG prices.
SGP’s overall operating performance in 2017 is likely to be better than TRIS Rating’s forecast due mainly to a price uptrend. The price of LPG rose from US$380 per ton in December 2016 to US$590 per ton in December 2017, a 55.2% increase. The company’s sales volume of LPG continues to grow moderately, backed by additional sales volume from imports of LPG and ongoing expansion into the Chinese market. The company’s liquidity profile remains satisfactory, assessed by higher funds from operation (FFO) to total debt ratios as a result of better cash flow generated in 2017. Meanwhile the debt to capitalization ratio is expected to be around 50% in 2017, the same level in 2015 and 2016.
RATING OUTLOOK
The “stable” outlook reflects the expectation that SGP will be able to maintain its strong position as the second-largest LPG distributor in Thailand. Reliable cash flows from LPG operations in Thailand will partly alleviate the volatile margin of overseas operations. TRIS Rating expects total trading volume will grow by 5%-7%. The FFO is expected to be volatile but average approximately Bt2.5 billion per annum. The FFO to total debt ratio should stay above 15% in the long term.
RATING SENSITIVITIES
An upgrade potential for SGP’s rating and the ratings of its existing debentures is likely to be limited in the medium term due to exposure to the price risk inherent in the global LPG market. However, the rating may be upgraded if the company’s FFO becomes larger and/or more stable, or if the debt to capitalization ratio is controlled at a low level for an extended period.
The ratings could be revised downward if SGP’s financial profile materially deteriorates for an extended period. This could arise if the earnings before interest, tax, depreciation, and amortization (EBITDA) interest coverage and/or FFO to total debt ratio significantly falls below TRIS Rating’s expectation or if there are large debt-funded acquisitions, leading to a significantly weaker financial profile.
The issue ratings and outlook for SGP’s partially guaranteed debentures reflect the creditworthiness of both the issuer and its guarantor, CGIF. The issue ratings could be revised upward or downward should there be any changes in the credit profiles of SGP or its guarantor.
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