TRIS Rating Co., Ltd. has affirmed the ratings of United Farmer & Industry Co., Ltd. (UFIC) and its senior secured debentures (UFIC06NA, UFIC07NA, UFIC08NA, UFIC09OA) at "BBB+" with "stable" rating outlook. As a sugar producer under the Mitr Phol Group, UFIC's rating reflects the Mitr Phol Group's leading position in the Thai sugar and sugarcane industry, its well-accepted brand name, its above-average sugar mill operations, and its diversification into related businesses. Although 55% of UFIC's revenue comes from export markets, its exposure to sugar commodity price risk is partly mitigated by the 70:30 revenue sharing system. However, these strengths are partially offset by the highly leveraged balance sheets of both the company and the group, as well as the adverse effect of the drought on sugarcane supply.
The "stable" outlook reflects TRIS Rating's expectation that UFIC's parent, the Mitr Phol Group, will continue to maintain its position as Thailand's largest sugar producer, and UFIC will continue to be the major sugar producer within the group. UFIC's profitability is expected to be relatively stable, as a result of the revenue sharing system in the Thai sugar and sugarcane industry.
TRIS Rating reported that UFIC is the major sugar producer within the Mitr Phol Group, the leader in the Thai sugar and sugarcane industry. Of the five sugar mills within the group, UFIC operates three sugar processing plants in Chaiyaphoom, Khon Kaen, and Kalasin provinces. For the 2004/2005 production period, the Mitr Phol Group continues to be the largest sugar producer in Thailand with an 18.5% market share, followed by Thai Roong Ruang Group (14.5%), Thai Ekkalak Group (13.2%), Khon Kaen Sugar Group (8.4%), and Wang Kanai Group (8.3%).
TRIS Rating said that sugarcane production in Thailand declined by 26% from 64.5 million tonnes in the 2003/2004 production period to 47.8 million tonnes in the 2004/2005 production period, due to the prolonged drought. UFIC's sugar production in the 2004/2005 crushing period was 642,400 tonnes, down by 23% from the previous year. Its crushing yield of 116.57 kilograms (kg.) per cane tonne was better than the industry average of 108.49 kg. Apart from its sugar business, UFIC operates other sugar-related businesses, including particle board, power plants, and ethanol production. The ethanol project is expected to start operations in early 2007.
TRIS Rating said, sugarcane production in the 2005/2006 production period is projected to be approximately 40 million tonnes, due to both the drought and the reduction of plantation area. A decline in sugarcane supply leads to difficulties in cane procurement and results in higher cane costs. Looking forward, sugarcane supply shortages will be a major risk factor for sugar operators in the coming years.
While UFIC's total debt to capitalization ratio declined from 86.71% in 2003 to 72.28% in 2004, TRIS Rating sees that UFIC's total debt remains at a high level. As of March 2005, the company's total debt increased to Bt11,614 million from Bt8,558 million in 2003, due to higher short-term financing needs and increasing amounts of long-term loans required for its new investments in the particle board business. - End
United Farmer & Industry Co., Ltd. (UFIC) Company Rating: Affirmed at BBB+ Issue Ratings: UFIC06NA: Bt200 million senior secured debentures due 2006 Affirmed at BBB+ UFIC07NA: Bt500 million senior secured debentures due 2007 Affirmed at BBB+ UFIC08NA: Bt500 million senior secured debentures due 2008 Affirmed at BBB+ UFIC09OA: Bt500 million senior secured debentures due 2009 Affirmed at BBB+ Rating Outlook: Stable