TRIS Rating Co., Ltd. has removed the company rating of Advance Agro PLC (AA) from CreditAlert with "Developing" designation, where it had been placed since 16 November 2005 after the company committed a technical default on its 13% Guaranteed Notes that are due in 2007. At the same time, TRIS Rating has affirmed AA's company rating at "BBB" with a "stable" outlook. Since the CreditAlert announcement, AA has successfully raised US$250 million through the issuance of 11% bonds due 2012. The proceeds are being used to repay all AA's and its subsidiaries' secured debts under the Master Override Agreement (MOA) with local banks. This releases AA from the risk of cross default on its loans, which was possible under the terms of the MOA after the technical default referred to above. In addition, the chance that the 2007 noteholders will accelerate payment, which could possibly lead to a liquidity problem for AA, is also minimal. AA reported to TRIS Rating that the company has punctually met all its debt obligations and has yet to receive any response fromthe 2007 noteholders and does not expect the noteholders will make such a call.
TRIS Rating reported that the refinancing has provided AA with greater flexibility since all pledged assets associated with the secured bank debt were freed up. The company will have no interest rate risk since all rates are fixed. The short-term liquidity risk associated with the rigid debt repayment schedule under the MOA with three local banks also disappears. However, the company will incur higher periodic interest payments in the short- to medium-term, as the cost of long-term financing will increase from an average MLR, which equaled to 6.75% as of 6 February 2006, to 11%. In addition, the company still has an obligation to retire the US$48.72 million in 13% Guaranteed Notes in 2007.
TRIS Rating said AA is a major pulp and paper producer in Thailand. Currently, the company and its subsidiaries own two pulp mills, with total production capacity of around 500,000 tonnes per year (tpy) and three paper machines that provide total capacity of around 564,000 tpy. The capacity utilization rates of the company's two pulp mills and three paper mills were more than 100% in 2005.
The "BBB" rating reflects AA's strong position as the leading producer of short fiber pulp and printing & writing paper (P&W paper) in Thailand and its fully integrated and efficient plant facility. The rating also takes into consideration increasing demand for pulp and paper in both domestic and export markets. However, these strengths are partially offset by the company's ongoing high leverage, inherent price volatility in the pulp and paper industry, and its limited product line, compared with its major competitor. While the "stable" outlook for AA reflects the expectation that if the company could improve its operating performance, largely as a result of favorable pulp and paper demand worldwide, this should enable AA to improve its financial status. Any large investments that might cause the financial profile of the company to deteriorate would result in a rating or outlook revision, said TRIS Rating. - End
Advance Agro PLC (AA) Company Rating: Affirmed at BBB Rating Outlook: Stable