TRIS Downgrades ITD's Senior Debentures to "BBB-" from "BBB"
Thai Rating and Information Services Co., Ltd. (TRIS) announced Wednesday 19 April 2000 that it has lowered the rating of Italian-Thai Development PLC's (ITD) Bt3,500 million senior debentures due 2005 to "BBB-" from "BBB." The downgrade is based on the company's weak financial profile, which has been adversely affected by the economic slowdown, and its financial burden. Its profitability has been squeezed while its leverage remains high at around 70% debt-to-capitalization. In the intermediate term, TRIS is concerned about the ability of ITD to meet some of the financial covenants of its loan agreements. Its financial weakness offsets its strong business position in the construction industry in Thailand. TRIS reported that as the largest contractor in Thailand, ITD should benefit from the recovery of the construction industry, which is expected to grow 1% in 2000. Government construction projects contributed 70% to ITD's revenues before 1997 and increased to around 90% during 1997-1999. Increased dependency on government projects eases ITD's bad debt problems but it also squeezes the company's margins. Construction delays and project revisions are a concern for government projects. TRIS said ITD's 1999 results were relatively poor compared to its past performances. From a net profit of Bt2,455 million in 1998, ITD reported a net loss of Bt1,459 million in 1999. TRIS also added that ITD's profitability in 1999 was unsatisfactory and its operating margins declined from 16.7% in 1996 to 11.6% in 1998 and 6.2% in 1999. A mismatch of revenues and expenses on certain projects, as reported to the Stock Exchange of Thailand, resulted in an overstatement of 1998 performance. Its leverage ratio as of December 1999 was 73.3%. EBITDA interest coverage for 1999 stood at 1.4 times. During 1999, ITD breached some financial covenants of its loan agreements and debenture indentures. Although these covenants were later waived by its lenders, this is still a matter of concern. ITD's ability to meet debt obligations relies partly on its plans to dispose of assets and raise capital specified in the Master Rescheduling Agreement. Despite the company's firm commitment to the plan, TRIS is concerned that the timing and the amount of money needed cause uncertainty because so much depends on external factors beyond the company's control.
Note: Italian-Thai Development PLC (ITD)
Issue rating
ITD#1: Bt3,500 million Downgraded to BBB-
senior debentures due 2005 from BBB
************************