TRIS Rating Co., Ltd. has revised the rating outlook of Italian-Thai Development PLC (ITD) to “negative” from “stable”. The revised outlook reflects the concerns of TRIS Rating about ITD’s medium-term profitability. At the same time, TRIS Rating affirms the company and issue ratings of ITD at “A-”. The
ratings reflect the company’s strong position as the largest general construction contractor in Thailand,
its strong backlog, broad product line, as well as track record and expertise to perform large and
complex projects. The ratings also take into consideration the cyclical nature of the engineering and construction (E&C) industry, intense competition, and the company’s increasing financial leverage.
The “negative” outlook reflects TRIS Rating’s concerns about ITD’s medium-term profitability.
The longer delays for government spending projects as well as weak overseas operating performance
will constrain the company’s efforts to restore profitability. ITD’s credit ratings shall be revised downward
if the company’s financial performance does not recover to acceptable levels.
TRIS Rating reported that for the first nine months of 2006, ITD had a net loss of Bt1,420 million. The loss was mainly due to a huge provision for a potential construction loss and contingent liabilities on a
special purpose vehicle (SPV). Under the facility agreement between the company and the SPV, ITD has
an obligation to extend a loan to SPV in case that SPV does not have enough cash to repay debts to
creditors. As at September 2006, the SPV had outstanding loans worth Bt1,963 million and foreclosed
assets for sale amounting to Bt936 million. At present, ITD has set aside Bt815 million as an allowance
for this contingent liability.
ITD’s results from construction activities in the third quarter of 2006 were far weaker than
TRIS Rating’s expectations. The main loss came from the Kol Dam project in India. ITD estimated the cost overrun on the Kol Dam project to be approximately Bt1,200 million from a potential construction delay
of two years and unsettled variation orders. The company had set a provision of Bt758 million for the potential loss while Bt442 million has already been recognized as a cost. Though the company intends to seek reimbursement for the higher costs from the sponsor, recovery is still uncertain. The loss on Kol Dam project should not have a major impact on ITD’s performance as it accounted for 5.8% of ITD’s total backlog of Bt84,347million as of November 2006. The poor performance of a subsidiary, ITD Cementation India (ITDCEM), a construction company in India, hurt profitability. ITDCEM had construction revenue of approximately Bt3,160 million and net loss of Bt35 million for the first nine months of 2006. The loss was mainly due to high interest expenses. ITD is considering raising ITDCEM’s capital to reduce leverage. Nonetheless, the process will take time and may be completed in the second half of 2007.
TRIS Rating estimates that a slowdown in private construction as well as delays in government
projects will intensify competition in the E&C industry. In addition, low-margin orders, which constitute approximately 30% of the total backlog including loss-making of the Kol Dam project will restrain the
overall margin. The challenge for ITD is to control costs and maintain bidding discipline by focusing on profitability rather than business volume. Apart from construction costs, financing costs are also a major burden. ITD’s interest expense increased considerably from Bt589 million in 2005 to Bt664 million for the nine months ended September 2006. The surge in interest expense was due to higher loan balances and
higher interest rates. The increasing loans were used to finance business expansion and acquisitions.
TRIS Rating’s concern is the acquisition of a potash project funded by loan from Siam Commercial
Bank PLC (SCB). Though the business has potential, it is uncertain when the mining license will be
granted. The longer the wait, the higher the interest burden, said TRIS Rating. -- End
Italian-Thai Development PLC (ITD)
Company Rating: Affirmed at A-
Issue Ratings:
ITD089A: Bt1,057.1 million senior debentures due 2008 Affirmed at A-
ITD099A: Bt706.7 million senior debentures due 2009 Affirmed at A-
Rating Outlook: Revised to “Negative” from “Stable”
-------------------------------------------------------
Copyright 2007, 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 such information.
ratings reflect the company’s strong position as the largest general construction contractor in Thailand,
its strong backlog, broad product line, as well as track record and expertise to perform large and
complex projects. The ratings also take into consideration the cyclical nature of the engineering and construction (E&C) industry, intense competition, and the company’s increasing financial leverage.
The “negative” outlook reflects TRIS Rating’s concerns about ITD’s medium-term profitability.
The longer delays for government spending projects as well as weak overseas operating performance
will constrain the company’s efforts to restore profitability. ITD’s credit ratings shall be revised downward
if the company’s financial performance does not recover to acceptable levels.
TRIS Rating reported that for the first nine months of 2006, ITD had a net loss of Bt1,420 million. The loss was mainly due to a huge provision for a potential construction loss and contingent liabilities on a
special purpose vehicle (SPV). Under the facility agreement between the company and the SPV, ITD has
an obligation to extend a loan to SPV in case that SPV does not have enough cash to repay debts to
creditors. As at September 2006, the SPV had outstanding loans worth Bt1,963 million and foreclosed
assets for sale amounting to Bt936 million. At present, ITD has set aside Bt815 million as an allowance
for this contingent liability.
ITD’s results from construction activities in the third quarter of 2006 were far weaker than
TRIS Rating’s expectations. The main loss came from the Kol Dam project in India. ITD estimated the cost overrun on the Kol Dam project to be approximately Bt1,200 million from a potential construction delay
of two years and unsettled variation orders. The company had set a provision of Bt758 million for the potential loss while Bt442 million has already been recognized as a cost. Though the company intends to seek reimbursement for the higher costs from the sponsor, recovery is still uncertain. The loss on Kol Dam project should not have a major impact on ITD’s performance as it accounted for 5.8% of ITD’s total backlog of Bt84,347million as of November 2006. The poor performance of a subsidiary, ITD Cementation India (ITDCEM), a construction company in India, hurt profitability. ITDCEM had construction revenue of approximately Bt3,160 million and net loss of Bt35 million for the first nine months of 2006. The loss was mainly due to high interest expenses. ITD is considering raising ITDCEM’s capital to reduce leverage. Nonetheless, the process will take time and may be completed in the second half of 2007.
TRIS Rating estimates that a slowdown in private construction as well as delays in government
projects will intensify competition in the E&C industry. In addition, low-margin orders, which constitute approximately 30% of the total backlog including loss-making of the Kol Dam project will restrain the
overall margin. The challenge for ITD is to control costs and maintain bidding discipline by focusing on profitability rather than business volume. Apart from construction costs, financing costs are also a major burden. ITD’s interest expense increased considerably from Bt589 million in 2005 to Bt664 million for the nine months ended September 2006. The surge in interest expense was due to higher loan balances and
higher interest rates. The increasing loans were used to finance business expansion and acquisitions.
TRIS Rating’s concern is the acquisition of a potash project funded by loan from Siam Commercial
Bank PLC (SCB). Though the business has potential, it is uncertain when the mining license will be
granted. The longer the wait, the higher the interest burden, said TRIS Rating. -- End
Italian-Thai Development PLC (ITD)
Company Rating: Affirmed at A-
Issue Ratings:
ITD089A: Bt1,057.1 million senior debentures due 2008 Affirmed at A-
ITD099A: Bt706.7 million senior debentures due 2009 Affirmed at A-
Rating Outlook: Revised to “Negative” from “Stable”
-------------------------------------------------------
Copyright 2007, 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 such information.