TRIS Rating Co., Ltd. has assigned a “A” rating to the proposed issue of up to Bt5,000 million in senior debentures of Mitr Phol Sugar Corporation Ltd. (MPSC). At the same time, TRIS Rating has also affirmed the company rating of MPSC and the ratings of its existing senior secured debentures at “A”. The outlook remains “stable”. The ratings reflect MPSC’s proven record and leading position in the Thai sugar and sugarcane industry, its position as the second largest sugar producer in China, a well-accepted brand name, efficient sugar mill operations, and diversification into related businesses. The ratings also take into consideration the company’s exposure to the regulatory and operational risks of its overseas sugar operations, as well as the volatility of sugar prices and sugarcane supply.
The “stable” outlook reflects TRIS Rating’s expectation that the MPSC Group will maintain its leading position in both the Thai and Chinese sugar industries. With a solid position in the sugar business and reliable cash flow from the energy business, the company should be able to weather the wide fluctuations in global sugar prices.
TRIS Rating reported that MPSC was established in 1946 by the Vongkusolkit family. The company is the leader in the Thai sugar and sugarcane industry. The Vongkusolkit family collectively holds 100% of MPSC’s shares through Mid-Siam Sugar Co., Ltd. MPSC operates a total of five sugar mills in Thailand, with a combined cane crushing capacity of 130,500 tonnes per day. For the 2009/2010 production period, the MPSC Group had the largest share of sugar production in Thailand at 1.28 million tonnes, which was down by 1.57% from the previous year, compared with a drop of 3.94% for the industry. The MPSC Group has maintained its market share of sugarcane in Thailand at 18.09%, which was slightly lower than the Thai Roong Ruang Group (18.23%), but higher than the Thai Ekkalak Group (13.73%), and the KSL Group (6.42%).
Apart from the sugar business in Thailand, MPSC currently owns and operates seven sugar mills in China with total sugar production of 1.11 million tonnes for the 2008/2009 period. The company had an 8.85% market share in the 2008/2009 period, making it the second largest sugar producer in China. The crushing yield in China was 128.93 kilograms (kg.) per cane tonne in the 2008/2009 period, which was higher than the crushing yield in Thailand of 109.24 kg. In fiscal year (FY) 2009, MPSC’s total sales were Bt49,049 million; revenue from the sugar business in China accounted for 43.29%. MPSC’s total earnings before interest, tax, depreciation and amortization (EBITDA) were Bt7,670 million in FY2009. The China operations contributed 49.85% of total EBITDA. MPSC’s sugar mill in Lao PDR started operation in December 2008 and produced 22,940 tonnes of raw sugar for the 2008/2009 period. In May 2009, MPSC successfully exported the first shipment of raw sugar produced in Lao PDR to the European Union (EU). For the 2009/2010 period, sugarcane production of Mitr Lao Sugar Co., Ltd. was 367,000 tonnes, up by 65.72% from the previous year.
TRIS Rating said that MPSC has expanded along the sugar value chain to maximize the utilization of sugarcane in both Thailand and China. Related businesses include electricity generation, ethanol production, particle board, and paper production. MPSC’s ethanol plants in Thailand have a current production capacity of 600,000 liters per day, after the opening of the latest plant in Dan Chang, Suphanburi province, in December 2009. The EBITDA from the ethanol business increased from Bt642 million in FY2007 to Bt1,815 million in FY2009, as a result of an increase in production capacity and higher market prices.
MPSC’s financial performance has been satisfactory. In FY2009, total sales were Bt49,049 million, up by 17.57% from FY2008, due mainly to the higher prices of sugar and ethanol. The operating income before depreciation and amortization to sales ratio slightly decreased from 16.11% in FY2008 to 15.35% in FY2009, mainly due to the unplanned shutdown of the Phu Khieo Bio-Energy plant for six months and the high molasses cost. During 2010-2011, capital expenditures will be approximately Bt5,000 million per year to increase sugar capacity in Thailand, expand the sugar refinery in China, and build new power plants in Thailand and China. The company plans to fund these expansions by using a combination of cash flow from operations and new borrowings. The proceeds from the new debentures will mainly be used to refinance existing long-term loans of its energy businesses (power and ethanol plants) and particle board business and some of existing loans of its sugar businesses in China. The total debt to capitalization ratio is expected to be maintained close to the current level of 50.85% as of October 2009.
For the 2009/2010 operation, the world raw sugar price declined sharply from a peak of 27.29 cents/pound (lb) in February 2010 to approximately 16-17 cents/lb in April 2010. However, MPSC’s sugar operation in Thailand has been partly protected by the revenue sharing system of the Thai sugar and sugarcane industry, and by its strategy to lock in raw sugar prices for most of its 2009/2010 sugar in Thailand at approximately 19 cents/lb through forward agreements. For the China sugar operation, sugar prices in China typically reflect domestic demand and supply. Thus, sugar prices in China remained at a high level of RMB5,000 per tonne in April 2010. -- End
Company Rating: Affirmed at A Issue Ratings: MPSC10OA: Bt500 million senior secured debentures due 2010 Affirmed at A MPSC11OA: Bt500 million senior secured debentures due 2011 Affirmed at A MPSC12OA: Bt500 million senior secured debentures due 2012 Affirmed at A Up to Bt5,000 million senior debentures due within 2015 A Rating Outlook: Stable
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