TRIS Rating Co., Ltd. has affirmed the company rating of TPI Polene PLC (TPIPL) at “BBB” with “negative” outlook. The rating reflects the company’s strong market position in the cement and low density polyethylene (LDPE) market and its strong internal cash generation compared with its debt. However, these strengths are partially offset by intense competition in the domestic cement market and the cyclical nature of both the cement and petrochemical industries, which causes the company’ s operating performance to fluctuate. In addition, TPIPL’s refinancing remains a concern as substantial debts are scheduled to be repaid in December 2008 while relationships with financial institutions will take time to rebuild.
The “negative” outlook reflects TRIS Rating’s concerns regarding TPIPL’s refinancing risk. The success of refinancing is uncertain and hinges on the confidence of creditors and investors. The Criminal Court imposed a Bt6,900 million fine on TPIPL for violating stock market’s regulations. Though this fine has no cash impact in the near future, the ruling may negatively impact the company’s refinancing plans.
TRIS Rating reported that the total domestic demand for cement increased slightly by 0.65% to 29.2 million tonnes in 2006. However, domestic demand in the first nine months of 2007 dropped by 4.52% year on year to 21.3 million tonnes. TPIPL’s cement and concrete sales increased slightly from Bt14,391 million in 2005 to Bt15,058 million in 2006. The rise was attributed to a price increase and higher export volume. Despite the price rise, the gross margin of the cement and concrete business dropped from 33% in 2005 to 32% in 2006 as the higher selling prices were not sufficient to fully offset escalating energy and electricity costs. In the first nine months of 2007, the gross margin declined further to 31%, mainly due to price reductions, that were used to help the company maintain market share. Cash flow generation from the cement and concrete business remains strong despite volatility in the construction industry. For the petrochemical business, the company’s operating performance was rather good in the first nine months of 2007 due to limited domestic supplies of LDPE and improving LDPE-ethylene and ethyl vinyl acetate (EVA)-ethylene spreads. Capacity utilization for TPIPL’s cement and petrochemical plants are already at more than 90%. However, there are no plans to expand capacity in the next 1-2 years as the company has limited financial flexibility. According to existing loan agreements, TPIPL needs the consent of creditors for any investment that is greater than Bt400-Bt600 million. TPIPL has focused on improving production efficiency rather than adding capacity. TPIPL has invested in waste heat recovery generator project with estimated total value of approximately Bt1,700 million and the completion is expected in 2008. The management estimates that the generator will save approximately Bt550 million per year in electricity cost. For its petrochemical business, the company shifted the production mix to make more EVA products, which generate higher margins than LDPE.
TRIS Rating said, TPIPL’s financial profile improved considerably in 2006 after repaying a large amount of debt in August 2006. The adjusted debt level declined from Bt28,992 million in December 2005 to Bt12,807 million in December 2006, and to Bt11,098 million in September 2007, a level that is considered low compared with TPIPL’s cash generating ability. As of September 2007, TPIPL’s adjusted debt to total capitalization ratio was 18.64%. In the first nine months of 2007, the funds from operations to adjusted debt and earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratios were 23.40% (non-annualized) and 8.04 times, respectively. Though TPIPL’s long-term financial profile is acceptable, it is diminished by concerns over short-term refinancing as it must repay substantial amounts of debt in December 2008. Under the initial debt restructuring program, the deadline was 31 December 2007. As the company was unable to conclude a refinancing package before the deadline, it requested and received approval from the Central Bankruptcy Court to extend the repayment period for another year till 31 December 2008. -- End
TPI Polene PLC (TPIPL)
Company Rating: Affirmed at BBB
Rating Outlook: Negative
-----------------------------------------------------------------------
Copyright 2008, 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.
The “negative” outlook reflects TRIS Rating’s concerns regarding TPIPL’s refinancing risk. The success of refinancing is uncertain and hinges on the confidence of creditors and investors. The Criminal Court imposed a Bt6,900 million fine on TPIPL for violating stock market’s regulations. Though this fine has no cash impact in the near future, the ruling may negatively impact the company’s refinancing plans.
TRIS Rating reported that the total domestic demand for cement increased slightly by 0.65% to 29.2 million tonnes in 2006. However, domestic demand in the first nine months of 2007 dropped by 4.52% year on year to 21.3 million tonnes. TPIPL’s cement and concrete sales increased slightly from Bt14,391 million in 2005 to Bt15,058 million in 2006. The rise was attributed to a price increase and higher export volume. Despite the price rise, the gross margin of the cement and concrete business dropped from 33% in 2005 to 32% in 2006 as the higher selling prices were not sufficient to fully offset escalating energy and electricity costs. In the first nine months of 2007, the gross margin declined further to 31%, mainly due to price reductions, that were used to help the company maintain market share. Cash flow generation from the cement and concrete business remains strong despite volatility in the construction industry. For the petrochemical business, the company’s operating performance was rather good in the first nine months of 2007 due to limited domestic supplies of LDPE and improving LDPE-ethylene and ethyl vinyl acetate (EVA)-ethylene spreads. Capacity utilization for TPIPL’s cement and petrochemical plants are already at more than 90%. However, there are no plans to expand capacity in the next 1-2 years as the company has limited financial flexibility. According to existing loan agreements, TPIPL needs the consent of creditors for any investment that is greater than Bt400-Bt600 million. TPIPL has focused on improving production efficiency rather than adding capacity. TPIPL has invested in waste heat recovery generator project with estimated total value of approximately Bt1,700 million and the completion is expected in 2008. The management estimates that the generator will save approximately Bt550 million per year in electricity cost. For its petrochemical business, the company shifted the production mix to make more EVA products, which generate higher margins than LDPE.
TRIS Rating said, TPIPL’s financial profile improved considerably in 2006 after repaying a large amount of debt in August 2006. The adjusted debt level declined from Bt28,992 million in December 2005 to Bt12,807 million in December 2006, and to Bt11,098 million in September 2007, a level that is considered low compared with TPIPL’s cash generating ability. As of September 2007, TPIPL’s adjusted debt to total capitalization ratio was 18.64%. In the first nine months of 2007, the funds from operations to adjusted debt and earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratios were 23.40% (non-annualized) and 8.04 times, respectively. Though TPIPL’s long-term financial profile is acceptable, it is diminished by concerns over short-term refinancing as it must repay substantial amounts of debt in December 2008. Under the initial debt restructuring program, the deadline was 31 December 2007. As the company was unable to conclude a refinancing package before the deadline, it requested and received approval from the Central Bankruptcy Court to extend the repayment period for another year till 31 December 2008. -- End
TPI Polene PLC (TPIPL)
Company Rating: Affirmed at BBB
Rating Outlook: Negative
-----------------------------------------------------------------------
Copyright 2008, 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.