TRIS Affirms a "BBB-" Rating for TASCO's Issue
Thai Rating and Information Services Co., Ltd. (TRIS) announced Wednesday 12 April 2000 that it has affirmed a "BBB-" rating to Tipco Asphalt PLC's (TASCO) Bt1,300 million senior convertible debentures due in September 2000. The rating reflects TASCO's leadership position in the asphalt emulsion and asphalt cement market through its extensive and well-managed customer base and expansion into export markets. The company also has sufficient funds to repay the remaining Bt474 million of the Bt1,300 million rated convertible debentures due in September 2000. These strengths, however, are offset by the company's overall weak financial profile with a high debt repayment burden due within 2001, and sharp increases in oil prices in the second half of 1999 and the first quarter of 2000 which have raised the company's raw material costs.
TRIS reported that the impact of government budget cuts on infrastructure spending is still a concern for asphalt industry. Government budgets for road construction and repair projects were cut 16.7% from Bt59,000 million in 1999 to Bt49,000 million in 2000. TASCO has emphasized on the domestic market but is seeking expansion into export markets, especially China and Indochina. Exports of asphalt during 1999 were valued at Bt826 million, an increase of Bt475 million from 1998, while domestic asphalt sales decreased Bt154 million to Bt2,542 million. The company's policy to diversify into diesel and fuel oil distribution also contributed to revenue growth in 1999 with an increase in oil sales from Bt647 million in 1998 to Bt908 million in 1999.
As of December 1999, TASCO had Bt472 million cash in hand and Bt3,228 million short-term investments, which is more than sufficient to repay the rated convertible debentures. However, the company's debt burden is very high with a total debt to capitalization ratio of 76.1% in 1999. Other major debts include Bt1,100 million debentures due in February 2001 and US$77 million convertible debentures due in September 2006 with a fixed rate of exchange of Bt25.375:US$1.00 for redemption at maturity. Holders of convertible debentures, however, have put options to redeem in US dollars in September 2001 at 132.564% of principal. TRIS expects that debentureholders will exercise their put options because the trading range of TASCO's stock during the first quarter of 2000 was Bt15.25 to Bt31.25 per share which is far below the conversion price of Bt155 per share with a fixed rate of exchange on conversion of Bt25.375:US$1.00. The debt in US dollars has no exchange hedge. TASCO will face financing challenges in 2001 as its internal cash generation and cash in hand and short-term investments will not be enough to repay these debts. TRIS also is concerned about TASCO's asphalt cement refinery project, which has been stalled without any exact implementation plans.
In 1999, the company's total sales increased 15.7% mainly due to the strong increase in export sales and oil sales. The operating margin before depreciation and amortization decreased from 16.6% in 1998 to 9.9% in 1999 because of the sharp increases in oil prices, which affect the asphalt cement price. Total debt to capitalization ratio increased from 74.5% in 1998 to 76.1% in 1999. FFO as a percentage of total debt decreased from 15.8% to 7.2%. Pretax interest coverage also dropped from 2.6 times to 1.6 times because of Bt1,100 million debentures issued in 1999 and decreases in its operating income.
Note: Tipco Asphalt PLC (TASCO)
Issue rating
TASCO@1: Bt1,300 million senior Affirmed at BBB-
convertible debentures due 2000