TRIS Rating Co., Ltd. has assigned a "AA" rating to the proposed Bt4,000 million depositary receipts on Bangchak Petroleum PLC's (BCP) subordinated convertible debentures (BCP-DR2) of Siam DR Co., Ltd. (SIAMDR). The rating reflects credit support in terms of principal protection provided by the Ministry of Finance (MOF) to buy back the BCP-DR2 at the original offering price should BCP be unable to make timely scheduled payments, the underlying issuer's credit quality, and the additional security elements embedded into the transaction structure itself.
TRIS Rating reported that BCP's credit quality is derived from its position as an oil refining and marketing company operating with high financial leverage compared with TRIS Rating's financial ratio benchmarks. BCP also has underutilized marketing business assets (i.e. its network of service stations) in a risky industry characterized by competitive pressures from domestic and regional supply-demand imbalances, cyclicality along the economic cycle, and unpredictable earnings due to oil price fluctuations. These weaknesses are being mitigated partly by a corporate and financial restructuring program with assistance from the government, and stronger oil demand stemming from the continuing economic recovery.
TRIS Rating said that prior to its corporate and financial restructuring program, BCP has encountered weak operating and financial performance since the 1997 economic crisis. To alleviate BCP's difficulties, the cabinet resolved on 8 July 2003 to require BCP to undertake a corporate and financial restructuring program. The corporate restructuring aims to improve efficiency in both the refining and marketing businesses to enhance cash from operations. Cash flow protection and profitability will improve if the restructuring program meets its goals. The main purpose of the financial restructuring is to lower BCP's financial leverage. BCP's capital structure will change from its current debt level of Bt19,500 million in loans and debentures to Bt12,500 million in permanent working capital and long-term loans from financial institutions, Bt3,000 million in common stock, and Bt4,000 million in 10-year subordinated convertible debentures. The financial restructuring could lead to lower leverage. In addition to its corporate and financial restructuring program, reduced competitive pressures in the industry arising from domestic and regional economic recoveries would also boost BCP's competitiveness and earnings in the medium term.
According to the financial restructuring program, the BCP-DR2 will be issued to bolster BCP's corporate and financial restructuring program under the government's support. The BCP-DR2 will be one of two issued securities: BCP-DR2 and depositary receipts on BCP's common stock (BCP-DR1). In order to fund part of BCP's financial restructuring program, BCP-DR1 and BCP-DR2 will be issued by SIAMDR to buy BCP's common stock and subordinated convertible debentures, respectively. SIAMDR is established and owned by The Stock Exchange of Thailand to act as an entity specifically for issuing depositary receipts. Payments to the holders of BCP-DR2 will be backed by payments from BCP's subordinated convertible debentures. To link BCP's subordinated convertible debentures with SIAMDR's BCP-DR2, SIAMDR will surrender its related rights on the subordinated convertible debentures to the BCP-DR2 holders.
TRIS Rating said, the BCP-DR2 is supported by the MOF's principal protection letter under the approval of the cabinet. Importantly, the MOF guarantees to buy back the BCP-DR2 at the original offering price if certain conditions occur: if BCP defaults on the subordinated convertible debentures' interest payments, if BCP shareholders resolve to liquidate or appoint a liquidator, or if the court orders the appointment of a receiver. Because only the principal is protected and not the interest payments, TRIS Rating estimates the expected loss of interest to BCP-DR2 holders by assuming various scenarios of default by BCP. The expected loss depends upon losses of interest after the default of BCP-DR2 and BCP's probability of default, derived from its credit quality. To determine the initial credit rating of BCP-DR2, TRIS Rating compares the expected loss and standard deviation with expected loss and standard deviation benchmarks in each rating category. Furthermore, TRIS Rating analyzes any interruption from SIAMDR's operational and legal risks in the structural provisions caused by the extent of commingled risk SIAMDR would have. The commingled risk has been evaluated to the extent that SIAMDR operates as a single-purpose company and would be affected by the shareholder's bankruptcy. TRIS Rating said that the ratings of structured finance are intended to be directly comparable to other ratings assigned by TRIS Rating. -- End
Siam DR Co., Ltd. (SIAMDR)Issue Rating: Bt4,000 million depositary receipts on Bangchak Petroleum PLC's AA
subordinated convertible debentures due 2014
TRIS Rating reported that BCP's credit quality is derived from its position as an oil refining and marketing company operating with high financial leverage compared with TRIS Rating's financial ratio benchmarks. BCP also has underutilized marketing business assets (i.e. its network of service stations) in a risky industry characterized by competitive pressures from domestic and regional supply-demand imbalances, cyclicality along the economic cycle, and unpredictable earnings due to oil price fluctuations. These weaknesses are being mitigated partly by a corporate and financial restructuring program with assistance from the government, and stronger oil demand stemming from the continuing economic recovery.
TRIS Rating said that prior to its corporate and financial restructuring program, BCP has encountered weak operating and financial performance since the 1997 economic crisis. To alleviate BCP's difficulties, the cabinet resolved on 8 July 2003 to require BCP to undertake a corporate and financial restructuring program. The corporate restructuring aims to improve efficiency in both the refining and marketing businesses to enhance cash from operations. Cash flow protection and profitability will improve if the restructuring program meets its goals. The main purpose of the financial restructuring is to lower BCP's financial leverage. BCP's capital structure will change from its current debt level of Bt19,500 million in loans and debentures to Bt12,500 million in permanent working capital and long-term loans from financial institutions, Bt3,000 million in common stock, and Bt4,000 million in 10-year subordinated convertible debentures. The financial restructuring could lead to lower leverage. In addition to its corporate and financial restructuring program, reduced competitive pressures in the industry arising from domestic and regional economic recoveries would also boost BCP's competitiveness and earnings in the medium term.
According to the financial restructuring program, the BCP-DR2 will be issued to bolster BCP's corporate and financial restructuring program under the government's support. The BCP-DR2 will be one of two issued securities: BCP-DR2 and depositary receipts on BCP's common stock (BCP-DR1). In order to fund part of BCP's financial restructuring program, BCP-DR1 and BCP-DR2 will be issued by SIAMDR to buy BCP's common stock and subordinated convertible debentures, respectively. SIAMDR is established and owned by The Stock Exchange of Thailand to act as an entity specifically for issuing depositary receipts. Payments to the holders of BCP-DR2 will be backed by payments from BCP's subordinated convertible debentures. To link BCP's subordinated convertible debentures with SIAMDR's BCP-DR2, SIAMDR will surrender its related rights on the subordinated convertible debentures to the BCP-DR2 holders.
TRIS Rating said, the BCP-DR2 is supported by the MOF's principal protection letter under the approval of the cabinet. Importantly, the MOF guarantees to buy back the BCP-DR2 at the original offering price if certain conditions occur: if BCP defaults on the subordinated convertible debentures' interest payments, if BCP shareholders resolve to liquidate or appoint a liquidator, or if the court orders the appointment of a receiver. Because only the principal is protected and not the interest payments, TRIS Rating estimates the expected loss of interest to BCP-DR2 holders by assuming various scenarios of default by BCP. The expected loss depends upon losses of interest after the default of BCP-DR2 and BCP's probability of default, derived from its credit quality. To determine the initial credit rating of BCP-DR2, TRIS Rating compares the expected loss and standard deviation with expected loss and standard deviation benchmarks in each rating category. Furthermore, TRIS Rating analyzes any interruption from SIAMDR's operational and legal risks in the structural provisions caused by the extent of commingled risk SIAMDR would have. The commingled risk has been evaluated to the extent that SIAMDR operates as a single-purpose company and would be affected by the shareholder's bankruptcy. TRIS Rating said that the ratings of structured finance are intended to be directly comparable to other ratings assigned by TRIS Rating. -- End
Siam DR Co., Ltd. (SIAMDR)Issue Rating: Bt4,000 million depositary receipts on Bangchak Petroleum PLC's AA
subordinated convertible debentures due 2014