TRIS Rating Co., Ltd. has affirmed the company rating of Khon Kaen Sugar Industry PLC (KSL) and the ratings of its senior debentures at “A-” with “stable” outlook. The ratings reflect KSL’s long track record in the Thai sugar and sugarcane industry, diversification into sugar-related businesses, and a healthy balance sheet. The ratings also take into consideration the company’s expansion plan, its exposure to the regulatory and operational risks of sugar operations in Laos and Cambodia, and the volatility of sugarcane supply and sugar prices.
The “stable” outlook reflects TRIS Rating’s expectation that KSL will maintain its market position in the Thai sugar industry. The recent drop in KSL’s sugar production during 2009-2010, as a result of the plant relocation, should be offset by relatively high sugar prices. Sugarcane plantations and the sugar mill projects in Laos and Cambodia are expected to operate in late 2009 as planned. The company is expected to maintain a healthy financial position to accommodate higher business risk from foreign operations.
TRIS Rating reported that KSL is one of the leading sugar producers in Thailand, established in 1945 by the Chinthammit family and associates. Currently, the Chinthammit family collectively holds 68.3% of the company’s shares. The company owns and operates four sugar plants in Khon Kaen, Kanchanaburi, and Chonburi provinces, with a combined cane crushing capacity of 66,000 cane tonnes per day. During the last five years, the KSL Group has been able to procure 4-5 million tonnes of sugarcane per year and produce an average of 500,000 tonnes of sugar per year. For the 2008/2009 period, the KSL Group has maintained the fourth largest share of sugarcane production in Thailand at 6.74%, following the Mitr Phol Group (17.95%), Thai Roong Ruang Group (17.65%) and Thai Ekkalak Group (14.45%).
TRIS Rating said that apart from the sugar business, since 2006, KSL has expanded along the sugar value chain to maximize its utilization of sugarcane. The new businesses include electricity generation and ethanol production. In 2008, revenue from the ethanol business accounted for 8% of total sales, up from 4% in 2007, as demand for gasohol gradually improved as a result of high oil prices. The operating income before depreciation and amortization to sales ratio remained relatively stable, ranging from 13%-17% during the last five years, due partly to the revenue sharing system of Thailand’s sugar and sugarcane industry.
New sugar plants in Laos and Cambodia have already completed test runs in early 2009 and are expected to start commercial production in the 2009/2010 production period. The combined investment in these two projects is Bt4,700 million. Part of the machinery used in both plants was relocated from the Chonburi plant, which reduced the cane crushing capacity of KSL for the 2008/2009 period. Sugar production by the KSL Group was 495,603 tonnes for the 2008/2009 production period, down by 18% from the previous year, while sugar production in Thailand dropped by 8%. KSL expects to export raw sugar from Laos and Cambodia to the European Union (EU) under the EBA (Everything But Arms) scheme at prices higher than world market prices. The political, regulatory, and operational risks of running sugar plants in those countries remain concerns. In addition to the foreign expansion, KSL plans to expand its sugar business in Kanchanaburi with a budget of Bt7,250 million. The new sugar complex includes the relocation and expansion of an existing sugar plant to Bo Ploy, Kanchanaburi, an ethanol plant, and a 90-megawatt power plant. The first phase of the project is scheduled to be completed in 2010 and the second phase in 2011.
KSL’s balance sheet has been healthy. As of April 2009, total debt was Bt7,966 million against an equity base of Bt10,880 million. The total debt to capitalization ratio rose from 32.85% in 2008 to 42.27% by the end of April 2009, due to the investments in Laos and Cambodia and the seasonality of working capital requirements during the sugarcane crushing period. The ratio is expected to slightly increase in 2010-2011 during the development period of the new sugar complex in Kanchanaburi.
TRIS Rating said, sugarcane production volume in Thailand has been very volatile, depending on natural rainfall, plantation area, and cane prices relative to competing products. Sugarcane production in 2008/2009 was 66.5 million tonnes, a decline of 9.3% from the previous year. Production in the 2009/2010 period is expected to reach at least the same level as the 2008/2009 period. However, the world raw sugar price improved from 13 cents/pound in late 2008 to approximately 17 cents/pound in June 2009, due mainly to supply shortages in India and other countries. Sugar prices are expected to hold steady at this high level for the next production period. -- End
Company Rating: Affirmed at A- Issue Ratings: KSL10NA: Bt1,000 million senior debentures due 2010 Affirmed at A- KSL11NA: Bt780 million senior debentures due 2011 Affirmed at A- KSL12NA: Bt500 million senior debentures due 2012 Affirmed at A- Rating Outlook: Stable
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