TRIS Rating Co., Ltd. has affirmed the company rating of Sahaviriya Steel Industries PLC (SSI) and the rating of SSI’s existing debentures at “BBB” with “negative” outlook. The ratings reflect SSI’s market position in Thailand as a leading producer of flat steel products, strong relationships with customers of premium grade products, a market protected by quotas and tariffs, and a variable cost structure that enhances production flexibility. These strengths are tempered by high competition from both local and overseas manufacturers, the cyclical nature of the steel industry, short-term customer contracts (one to three months), and limited operating diversity.
TRIS Rating maintained the “negative” outlook for SSI based on the expectation that SSI’s financial profile will be under pressure during the next 1-2 years. Though the company’s financial performance was weaker than anticipated, its financial profile still warrants the “BBB” ratings. However, the ratings would be downgraded if there is a material deterioration in the company’s financial profile, which might be caused by lower cash flow generation as a result of declining market prices or lost volume. A substantial rise in strategic investments, leading to weaker cash flow protection, will also exert downward rating pressure.
TRIS Rating reported that SSI is the market leader among the three hot rolled coils (HRC) manufacturers in Thailand in terms of production and sales volume. Unlike integrated steel mills and mini-mills, SSI does not manufacture steel, the company processes semi-finished steel slabs into flat-rolled coils. SSI owns a single production facility located close to a deep-sea port in Prachuap Khirikhan province. The sea port location was strategically chosen to cut transportation costs for both raw materials and finished steel products. Its domestic clients accounted for 78% of total shipments in the first nine months of 2007. The Thai steel industry is somewhat protected by government policies. Local producers benefit from 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 from countries not subject to anti-dumping tariffs, particularly China.
TRIS Rating said, SSI’s operational risk stems from its concentration of operation in a single production facility, which means that any unplanned shutdowns could impact 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 business model to stock a broad range of slabs to meet customers’ needs exposed it to inventory holding risk and a high working capital requirement.
SSI’s operating performance in the first nine months of 2007 was weaker than expected. Shipments for the first nine months of 2007 were 0.96 million tonnes, down by 31% from the same period last year. The decline was mainly due to sluggish demand in the domestic market and high slab and transportation costs. SSI slashed production to 0.88 million tonnes, compared with 1.25 million tonnes in the same period last year. A cost structure with high variable costs benefits SSI in terms of production flexibility. The company can adjust production schedule to match the market environment. Operating margin before depreciation and amortization in the first nine months of 2007 was 7.10%, improved from 6.31% in the same period of 2006. As business slowed, SSI’s outstanding debt declined as its loan was used mainly to finance working capital. Outstanding debt declined from Bt30,670 million as of December 2005 to Bt21,960 million as of December 2006 and further to Bt15,659 million as of September 2007. The total debt to capitalization ratio and the funds from operations to total debt ratio improved from 52.30% and 4.88% in 2006 to 43.55% and 6.67% (non-annualized) in the first nine months of 2007, respectively. -- End
Sahaviriya Steel Industries PLC (SSI)
Company Rating: Affirmed at BBB
Issue Rating:
SSI083A: Bt1,450 million senior secured debentures due 2008 Affirmed at BBB
Rating Outlook: Negative
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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.
TRIS Rating maintained the “negative” outlook for SSI based on the expectation that SSI’s financial profile will be under pressure during the next 1-2 years. Though the company’s financial performance was weaker than anticipated, its financial profile still warrants the “BBB” ratings. However, the ratings would be downgraded if there is a material deterioration in the company’s financial profile, which might be caused by lower cash flow generation as a result of declining market prices or lost volume. A substantial rise in strategic investments, leading to weaker cash flow protection, will also exert downward rating pressure.
TRIS Rating reported that SSI is the market leader among the three hot rolled coils (HRC) manufacturers in Thailand in terms of production and sales volume. Unlike integrated steel mills and mini-mills, SSI does not manufacture steel, the company processes semi-finished steel slabs into flat-rolled coils. SSI owns a single production facility located close to a deep-sea port in Prachuap Khirikhan province. The sea port location was strategically chosen to cut transportation costs for both raw materials and finished steel products. Its domestic clients accounted for 78% of total shipments in the first nine months of 2007. The Thai steel industry is somewhat protected by government policies. Local producers benefit from 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 from countries not subject to anti-dumping tariffs, particularly China.
TRIS Rating said, SSI’s operational risk stems from its concentration of operation in a single production facility, which means that any unplanned shutdowns could impact 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 business model to stock a broad range of slabs to meet customers’ needs exposed it to inventory holding risk and a high working capital requirement.
SSI’s operating performance in the first nine months of 2007 was weaker than expected. Shipments for the first nine months of 2007 were 0.96 million tonnes, down by 31% from the same period last year. The decline was mainly due to sluggish demand in the domestic market and high slab and transportation costs. SSI slashed production to 0.88 million tonnes, compared with 1.25 million tonnes in the same period last year. A cost structure with high variable costs benefits SSI in terms of production flexibility. The company can adjust production schedule to match the market environment. Operating margin before depreciation and amortization in the first nine months of 2007 was 7.10%, improved from 6.31% in the same period of 2006. As business slowed, SSI’s outstanding debt declined as its loan was used mainly to finance working capital. Outstanding debt declined from Bt30,670 million as of December 2005 to Bt21,960 million as of December 2006 and further to Bt15,659 million as of September 2007. The total debt to capitalization ratio and the funds from operations to total debt ratio improved from 52.30% and 4.88% in 2006 to 43.55% and 6.67% (non-annualized) in the first nine months of 2007, respectively. -- End
Sahaviriya Steel Industries PLC (SSI)
Company Rating: Affirmed at BBB
Issue Rating:
SSI083A: Bt1,450 million senior secured debentures due 2008 Affirmed at BBB
Rating Outlook: Negative
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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.