TRIS Rating Co., Ltd. has affirmed the ratings of Saha Pathana Inter-Holding PLC (SPI) and SPI’s Bt1,000 million senior debentures (SPI071A) at “A+” with “stable” outlook. The ratings reflect SPI’s diversified investments, the experience and demonstrated capability of its management team, and the group’s leading positions in its core businesses: instant noodles, garments, and cosmetics. The ratings also take into consideration SPI’s conservative investment policy and strong financial profile. However, these strengths are partially offset by the intense competition in the consumer products and food industries and Saha Group’s complex shareholding structure.
While the “stable” outlook reflects the stability of both the business and financial profiles of SPI. Dividend income from its diverse holdings, which are mostly in the consumer products sector, will continue to generate stable cash flow for the company in the medium to long term.
TRIS Rating reported that SPI was established in 1972 and is the major holding company of Saha Group. The company is responsible for initiating and investing in new businesses, providing debt and guarantee support to affiliates, facilitating industrial parks and infrastructure, and providing other services. At the end of 2005, SPI invested in 170 diversified companies in several industries. The diversity of these investments mitigates the concentration risk of any individual business being affected by economic cyclicality. SPI normally owns less than 50% of each company, which minimizes the impact of any individual investment suffering a loss. However, when its stake is combined with that of other companies in the Saha Group, the Group ownership is sufficient to control or jointly control operations of the companies it has invested in. The management teams of the Group’s core businesses are capable, and with policy guidance from SPI’s competent management team, Saha Group companies have been able to maintain leading positions in various markets. The keys to success to sustain SPI’s competitiveness include possessing many well-respected brand names, unique know-how and Group’s integrated business structure, both vertical and horizontal, especially in its significant market share businesses including garment, cosmetic and instant noodle. However, the very competitive nature of the industries challenges the Group to innovate continuously and to improve its costs to sustain its profitability.
TRIS Rating said that, SPI’s financial profile has continuously improved in recent years. Total debt (including guarantees to related companies) as a percentage of capitalization improved from a peak of 56.9% in 1997 to 19.2% in 2004 and to 15.3% in 2005, as a result of both increased retained earnings and lower debt. Moreover, the company’s policy to continuously reduce guarantees to affiliates has greatly reduced its exposure; guarantees declined from Bt2,673 million in 1997 to Bt331 million in 2004 and to Bt236 million in 2005. SPI’s ability to generate cash flow, which mainly relies on Saha Group’s performance, has also improved in line with profitability. After the economic crisis, SPI’s funds from operations (FFO) interest coverage ratio, which was 1.25 times in 1998, more than tripled to 4 times in 2002 and increased to 6.8 times in 2004 and 7.9 times in 2005. As a result of the cross-holding policy among Saha Group companies, some investors have difficulties analyzing the Group. However, all transactions among SPI and companies in the Saha Group conform to the regulations of the Stock Exchange of Thailand (SET). — End
Saha Pathana Inter-Holding PLC (SPI)
Company Rating: Affirmed at “A+”
Issue Rating:
SPI071A: Bt1,000 million senior debentures due 2007 Affirmed at “A+”
Rating Outlook: Stable