TRIS Rating Co., Ltd. has affirmed the company rating of Vinythai PLC (VNT) and the rating of VNT's Bt7,400 million senior secured debentures (VNT068A) at "BBB". The ratings reflect VNT's low cost position as well as its capable management team and support from its principal shareholders, Solvay S.A. of Belgium and Charoen Pokphand Group (CP). The ratings also take into consideration VNT's improving cash flow protection and the expectation of growing demand for polyvinyl chloride (PVC). However, the domestic oversupply of PVC and continued fierce price competition in the domestic market will limit the profit margins of Thai producers. In addition, the credit rating is negatively affected by wide fluctuations in PVC prices and margins faced by all PVC producers worldwide.
TRIS Rating reported that VNT is Thailand's second largest PVC manufacturer, with productive capacity equal to approximately 27% of total domestic capacity and sales of about 27% of domestic consumption in 2002. The company's products are PVC suspension, PVC emulsion and caustic soda. The major consumers for PVC are producers of pipes, fittings, film, sheet, profiles and cables.
TRIS Rating said that Solvay, one of the world's largest producers of vinyl products, with 7,918 million euros in total sales in 2002, has a 46% ownership stake in VNT and supervised the construction of VNT's fully integrated production complex to ensure that it met international standards. Under the covenants of VNT's debentures, Solvay and CP have committed to providing up to Bt800 million through equity or subordinated loans. These commitments enhance VNT's liquidity, especially during adverse situations.VNT's strong performance in 2000 was followed by a significant deterioration in 2001. The company's profitability increased substantially in 2002, but has declined slightly in the first nine months of 2003. Gross profit margins before depreciation and amortization have been relatively high, but declined from 40% in 2000 to 32% in 2001. The gross margin improved to 39% in 2002 and stood at 36% for the first nine months of 2003. Almost all of VNT's sales are linked to the US dollar, while about 50% of operating costs are US dollar linked. The company's debt to capitalization ratio was 85% to 100% during 1997-1999, primarily due to foreign exchange losses on the company's foreign-denominated debt after the devaluation of the baht during the Asian financial crisis. The ratio improved to 62% in 2000 after the company increased capital by Bt3,007 million and gradually repaid its debt. The debt to capitalization ratio declined further to 60%, 50%, and 40% at the end of 2001, 2002, and the end of September 2003 respectively. Funds from operations (FFO) to total debt improved from 2% in 1998 to 6% in 1999 and to double-digits in 2000-2002. The ratio stood at 23% (non-annualized) for the first nine months of 2003.
TRIS Rating said the Electro Chemical Unit (ECU), which integrated PVC producers normally use to measure industry health, reached its high point in March 2000 at US$710 per ton. However, this measure declined to US$413 per ton in August 2001. The ECU recovered well in early 2002, reaching a high of US$633 per ton in May 2002, but it dropped to US$479 in October 2003. Given the likelihood of limited capacity expansion worldwide and increasing world demand during the next two years, the average ECU may be sustained at a favorable level for the near-to medium-term. The import tariff on PVC for ASEAN Free Trade Area (AFTA) members has been cut from 10% to 5% since January 2003, while for non-AFTA members it remains at 20%. A continuing oversupply situation has forced Thai PVC suppliers to seek more export markets. Price-cutting strategies are expected to continue as the producers protect their market shares. However, as demand in the domestic market picks up, the cuts will be less harsh, said TRIS Rating. -- End
Vinythai PLC (VNT)Company Rating: Affirmed at BBBIssue Rating: VNT068A: Bt7,400 million senior secured debentures due 2006 Affirmed at BBB
TRIS Rating reported that VNT is Thailand's second largest PVC manufacturer, with productive capacity equal to approximately 27% of total domestic capacity and sales of about 27% of domestic consumption in 2002. The company's products are PVC suspension, PVC emulsion and caustic soda. The major consumers for PVC are producers of pipes, fittings, film, sheet, profiles and cables.
TRIS Rating said that Solvay, one of the world's largest producers of vinyl products, with 7,918 million euros in total sales in 2002, has a 46% ownership stake in VNT and supervised the construction of VNT's fully integrated production complex to ensure that it met international standards. Under the covenants of VNT's debentures, Solvay and CP have committed to providing up to Bt800 million through equity or subordinated loans. These commitments enhance VNT's liquidity, especially during adverse situations.VNT's strong performance in 2000 was followed by a significant deterioration in 2001. The company's profitability increased substantially in 2002, but has declined slightly in the first nine months of 2003. Gross profit margins before depreciation and amortization have been relatively high, but declined from 40% in 2000 to 32% in 2001. The gross margin improved to 39% in 2002 and stood at 36% for the first nine months of 2003. Almost all of VNT's sales are linked to the US dollar, while about 50% of operating costs are US dollar linked. The company's debt to capitalization ratio was 85% to 100% during 1997-1999, primarily due to foreign exchange losses on the company's foreign-denominated debt after the devaluation of the baht during the Asian financial crisis. The ratio improved to 62% in 2000 after the company increased capital by Bt3,007 million and gradually repaid its debt. The debt to capitalization ratio declined further to 60%, 50%, and 40% at the end of 2001, 2002, and the end of September 2003 respectively. Funds from operations (FFO) to total debt improved from 2% in 1998 to 6% in 1999 and to double-digits in 2000-2002. The ratio stood at 23% (non-annualized) for the first nine months of 2003.
TRIS Rating said the Electro Chemical Unit (ECU), which integrated PVC producers normally use to measure industry health, reached its high point in March 2000 at US$710 per ton. However, this measure declined to US$413 per ton in August 2001. The ECU recovered well in early 2002, reaching a high of US$633 per ton in May 2002, but it dropped to US$479 in October 2003. Given the likelihood of limited capacity expansion worldwide and increasing world demand during the next two years, the average ECU may be sustained at a favorable level for the near-to medium-term. The import tariff on PVC for ASEAN Free Trade Area (AFTA) members has been cut from 10% to 5% since January 2003, while for non-AFTA members it remains at 20%. A continuing oversupply situation has forced Thai PVC suppliers to seek more export markets. Price-cutting strategies are expected to continue as the producers protect their market shares. However, as demand in the domestic market picks up, the cuts will be less harsh, said TRIS Rating. -- End
Vinythai PLC (VNT)Company Rating: Affirmed at BBBIssue Rating: VNT068A: Bt7,400 million senior secured debentures due 2006 Affirmed at BBB