TRIS Rating Co., Ltd. has affirmed the rating of Sahaviriya Steel Industries PLC (SSI) and the ratings of SSI’s existing debentures (SSI073A, SSI083A) at “BBB” with “negative” outlook. The ratings reflect SSI’s market position in Thailand as a leading producer of flat steel products, strong relationship with customers of premium grade products, a protected market environment through quotas and tariffs, and sufficient domestic demand for steel products. These strengths are tempered
by high competition from both local and overseas manufacturers and the cyclical nature of the
steel industry, as well as the susceptibility of the company to short-term contracts (one to three months) and limited operating diversity.
The “negative” outlook reflects SSI’s weak financial profile. The company needs to strengthen its financial profile to mitigate the earnings variability. TRIS Rating is also concerned about the company’s ability to properly manage inventory during times of large price fluctuations.
TRIS Rating reported that, currently there are three manufacturers of hot rolled coils (HRCs) in Thailand. SSI is the market leader among local manufacturers in terms of production and sales
volume. Unlike integrated steel mills and mini-mills, SSI is not engaged in steel manufacturing;
rather the company processes semi-finished steel slabs into flat-rolled coils. The company owns a single production facility located close to a deep-sea port in Prachuap Khirikhan province. The sea
port location was strategically chosen as a means to cut transportation costs for both raw materials
and finished steel products. SSI’s revenue contribution has been mainly from domestic clients,
which accounted for 82% of total sales in 2005. The Thai steel industry is somewhat protected
by government policy. Local producers have been benefiting from the government policy to charge anti-dumping tariffs ranging from 3.22% to 128.11% on products imported from 14 countries. However, local producers are prone to be negatively affected by the influx of low cost steel imported from countries not subject to anti-dumping tariffs, particularly China.
TRIS Rating said, SSI’s operational risk stems from its concentration of operations in a single facility which may lead to unplanned shutdowns and impact to cash flow stability. In addition, the lack of vertical integration and product diversity exposes the company to the volatility of supply and demand for slabs and HRCs in the world market. SSI’s strategy to stock a broad range and large amount of slabs to meet customers’ needs results in a high working capital requirement and a high interest burden when interest rates rise. The company is exposed to volatility in both volume and sales prices from its inability to secure long-term sales contracts.
SSI’s operating performance in 2005 was weaker than expected. While revenue was relatively
stable, gross profit declined more than 50 % from Bt6,444 million to Bt3,084 million as a result
of higher slab prices in inventory, coupled with the sharp decline of spot HRC prices, and higher conversion cost from rising energy prices. Operating margin before depreciation and amortization
dropped from 17.86% in 2004 to 7.76% in 2005, and further declined to 2.73% in the first half of
2006. The prices of steel products have fallen steadily since the second quarter of 2005 and bottomed out at the beginning of 2006. With provisions of Bt2,663 million in 2005, SSI reported a net loss
of Bt1,536 million in 2005 compared with a net profit of Bt5,333 million in 2004. Total debt surged from Bt12,278 million in 2004 to a record level of Bt30,670 million as of December 2005 before being brought down to Bt26,821 million as of June 2006. Most of the debt was used to finance the company’s working capital, in particular inventory. The total debt to capitalization and funds from operations to total debt ratios weakened from 37.94% and 50.47% in 2004 to 58.43% and -0.73% in the first six months of 2006, respectively.
TRIS Rating sees that the coup against Prime Minister Thaksin Shinawatra launched by the Council for Democratic Reform (CRD) on 19 September 2006 will have no immediate effect on the ratings of SSI in the short term. During the 1-year period before the general election, TRIS Rating will closely monitor the situation and will review the ratings of SSI if any effects occur in the medium term. -- End
Sahaviriya Steel Industries PLC (SSI)
Company Rating: Affirmed at BBB
Issue Ratings:
SSI073A: Bt1,080 million senior secured debentures due 2007 Affirmed at BBB
SSI083A: Bt1,450 million senior secured debentures due 2008 Affirmed at BBB
Rating Outlook: Negative
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Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon
by high competition from both local and overseas manufacturers and the cyclical nature of the
steel industry, as well as the susceptibility of the company to short-term contracts (one to three months) and limited operating diversity.
The “negative” outlook reflects SSI’s weak financial profile. The company needs to strengthen its financial profile to mitigate the earnings variability. TRIS Rating is also concerned about the company’s ability to properly manage inventory during times of large price fluctuations.
TRIS Rating reported that, currently there are three manufacturers of hot rolled coils (HRCs) in Thailand. SSI is the market leader among local manufacturers in terms of production and sales
volume. Unlike integrated steel mills and mini-mills, SSI is not engaged in steel manufacturing;
rather the company processes semi-finished steel slabs into flat-rolled coils. The company owns a single production facility located close to a deep-sea port in Prachuap Khirikhan province. The sea
port location was strategically chosen as a means to cut transportation costs for both raw materials
and finished steel products. SSI’s revenue contribution has been mainly from domestic clients,
which accounted for 82% of total sales in 2005. The Thai steel industry is somewhat protected
by government policy. Local producers have been benefiting from the government policy to charge anti-dumping tariffs ranging from 3.22% to 128.11% on products imported from 14 countries. However, local producers are prone to be negatively affected by the influx of low cost steel imported from countries not subject to anti-dumping tariffs, particularly China.
TRIS Rating said, SSI’s operational risk stems from its concentration of operations in a single facility which may lead to unplanned shutdowns and impact to cash flow stability. In addition, the lack of vertical integration and product diversity exposes the company to the volatility of supply and demand for slabs and HRCs in the world market. SSI’s strategy to stock a broad range and large amount of slabs to meet customers’ needs results in a high working capital requirement and a high interest burden when interest rates rise. The company is exposed to volatility in both volume and sales prices from its inability to secure long-term sales contracts.
SSI’s operating performance in 2005 was weaker than expected. While revenue was relatively
stable, gross profit declined more than 50 % from Bt6,444 million to Bt3,084 million as a result
of higher slab prices in inventory, coupled with the sharp decline of spot HRC prices, and higher conversion cost from rising energy prices. Operating margin before depreciation and amortization
dropped from 17.86% in 2004 to 7.76% in 2005, and further declined to 2.73% in the first half of
2006. The prices of steel products have fallen steadily since the second quarter of 2005 and bottomed out at the beginning of 2006. With provisions of Bt2,663 million in 2005, SSI reported a net loss
of Bt1,536 million in 2005 compared with a net profit of Bt5,333 million in 2004. Total debt surged from Bt12,278 million in 2004 to a record level of Bt30,670 million as of December 2005 before being brought down to Bt26,821 million as of June 2006. Most of the debt was used to finance the company’s working capital, in particular inventory. The total debt to capitalization and funds from operations to total debt ratios weakened from 37.94% and 50.47% in 2004 to 58.43% and -0.73% in the first six months of 2006, respectively.
TRIS Rating sees that the coup against Prime Minister Thaksin Shinawatra launched by the Council for Democratic Reform (CRD) on 19 September 2006 will have no immediate effect on the ratings of SSI in the short term. During the 1-year period before the general election, TRIS Rating will closely monitor the situation and will review the ratings of SSI if any effects occur in the medium term. -- End
Sahaviriya Steel Industries PLC (SSI)
Company Rating: Affirmed at BBB
Issue Ratings:
SSI073A: Bt1,080 million senior secured debentures due 2007 Affirmed at BBB
SSI083A: Bt1,450 million senior secured debentures due 2008 Affirmed at BBB
Rating Outlook: Negative
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Copyright 2006, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon