TRIS Rating Co., Ltd. has affirmed the company and issue ratings of ASIAN Seafoods Coldstorage PLC (ASIAN) at “BBB-” with “negative” outlook. The ratings reflect ASIAN’s experienced and capable management team and its diverse range of products and markets. The ratings take into consideration a highly levered capital structure and not-as-expected tuna operating results, though improving. The ratings also consider the competitive and volatile nature of the seafood industry, trade barriers implemented by major importing countries, and the volatility of the Thai baht.
The “negative” outlook reflects TRIS Rating’s concerns over ASIAN’s covenant compliance status and near-term debenture refinancing risk. The outlook could be changed back to “stable” upon the company’s success in realigning existing loan terms with capital structure and future cash flow as well as securing sufficient funding to repay the Bt300-million debentures maturing in April 2009.
TRIS Rating reported that ASIAN is a Thai seafood producer with expected revenue of approximately Bt8 billion for 2008. The company’s business profile is underpinned by its management team, which has a great deal of experience in the seafood business. ASIAN offers a variety of products ranging from basic products (e.g. raw shrimp) to higher value-added products (e.g. breaded shrimp and sashimi), and has a unique niche market: sillago fish products. A broad product line and long-term relationships with clients provide ASIAN with operational flexibility. About 80% of export revenue is from the US, Japan, and the EU.
During 2005-2006, ASIAN invested approximately Bt1 billion in a tuna processing plant and a shrimp feed business, which resulted in a considerable rise in its debt level. Several unfavorable factors, in particular record high oil and tuna prices, significantly hampered ASIAN’s ability to make its new ventures profitable. These factors, together with foreign exchange hedging loss, exacerbated losses and pushed up debt level, resulting in a material deterioration of the financial profile in 2007. ASIAN’s operating performance improved in the second and third quarters of 2008 as tuna productivity rose and benefits from re-organization and cost saving initiatives began to materialize. TRIS Rating believes that the benefits of product diversification through the addition of the tuna and feed segments remain achievable in the medium term. For the first nine months of 2008, ASIAN’s earnings before interest, tax, depreciation, and amortization (EBITDA) margin was 6.7%, up from 2.3% in 2007. The debt to capitalization ratio as of September 2008 improved slightly to 68.7%, from 72.0% in 2007. The EBITDA interest coverage ratio rose to 3.8 times for the first nine months of 2008, from 1.6 times in 2007. In the short term, ASIAN’s performance should experience increasing pressure in the face of a growing global economic contraction. Assuming that the downward trend of fuel and commodity prices continues to persist through the remainder of 2009, the company will likely enjoy some additional time to improve effectiveness of tuna inventory management.
ASIAN’s operating margin is relatively narrow like all other seafood producers. Cash flow is seasonal due to fluctuations in raw material and product prices. Compared with large global players, the company does not enjoy the full extent of benefits achieved from full vertical and horizontal integration. Trade barriers imposed by importing countries continue to be a threat for seafood exporters. On the other hand, such regulations could benefit ASIAN as many smaller exporters may not be able to comply with stricter rules and may be shut out of certain markets in the future, TRIS Rating said. -- End
Company Rating: Affirmed at BBB- Issue Rating: ASC094A: Bt300 million senior debentures due 2009 Affirmed at BBB- Rating Outlook: Negative
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