TRIS Rating affirms the company rating on Unique Engineering and Construction PLC (UNIQ) at ?BBB? and affirms the ratings on UNIQ?s existing senior unsecured debentures at ?BBB-?. At the same time, TRIS Rating assigns the rating of ?BBB-? to UNIQ?s newly proposed issue of up to THB3 billion in senior unsecured debentures. The outlook remains ?stable?. The proceeds from the new debentures are intended for debt repayment and/or funding working capital. The issue ratings being one notch below the company rating reflects the subordination of the senior unsecured debentures to the priority debt as UNIQ?s priority debt to total debt ratio as of September 2022 was 58%, exceeding the 50% threshold.
The ratings continue to reflect UNIQ?s competitive strengths in undertaking large public infrastructure projects and its hefty backlog helping secure revenue over the next few years. These strengths are weighed down by the company?s heavy reliance on a few large construction projects, as well as highly cyclical and intense competition in the engineering and construction (E&C) industry.
UNIQ has shown weakening operating performance recently. Its earnings before interest, taxes, depreciation, and amortization (EBITDA) for the first nine months of 2022 plummeted by 40.7% year-on-year (y-o-y) to THB641 million after a surge in raw material prices and labor costs. Moreover, large sums of outstanding unbilled receivables and account receivables kept working capital requirements high, pushing up its debt burden. As a result, the company?s debt to EBITDA ratio shot up to 12.8 times in the first nine months of 2022 from 7.1 times in 2021. However, UNIQ focuses on public sector projects, which generally pose a minimal payment risk. Leverage should drop significantly once the company receives payments from project owners.
We expect UNIQ to appropriately manage its liquidity. About half of the company?s debt comprised short-term project financing from banks, providing flexible debt repayment terms. Its record of delivering construction projects should enable it to rollover the short-term facilities. To manage liquidity, UNIQ recently sold its non-operating assets worth about THB2 billion in total, raising its cash balance to THB5.3 billion as of September of 2022. The proceeds from the new debentures should mainly be used to replace the debentures worth THB3 billion, coming due in February 2023.
RATING OUTLOOK
The ?stable? outlook reflects our expectation that UNIQ will maintain its competitive edge in public work construction. Its profitability and leverage should improve, in line with our forecast.
RATING SENSITIVITIES
A rating downgrade could occur should there be a further deterioration in UNIQ?s financial profile. This could be caused by project delays, cost overruns, or inefficient working capital management, such that its debt to EBITDA ratio stays above 8 times on a sustained basis. In contrast, a rating upgrade could arise if its profitability and working capital management improves materially, resulting in a significant reduction in financial leverage.
RELATED CRITERIA
- Corporate Rating Methodology, 15 July 2022
- Key Financial Ratios and Adjustments for Corporate Issuers, 11 January 2022
- Issue Rating Criteria, 15 June 2021
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Unique Engineering and Construction PLC (UNIQ)
Company Rating: BBB
Issue Ratings:
UNIQ232A: THB3,000 million senior unsecured debentures due 2023 BBB-
UNIQ257A: THB2,440.1 million senior unsecured debentures due 2025 BBB-
UNIQ262A: THB3,000 million senior unsecured debentures due 2026 BBB-
Up to THB3,000 million senior unsecured debentures due within 4 years BBB-
Rating Outlook: Stable