Siam Cement

The proceeds will be used to refinance maturing debentures and fund future capex and investments. The notes are rated at the same level as SCC's National Long-Term Rating (A(tha)/Stable/F1(tha)) as they constitute direct, unsecured, unconditional and unsubordinated obligations of the company.

 

KEY RATING DRIVERS

Improved Financial Profile: In 2015, high product-to-feed margins of its chemicals business led to higher EBITDA margin and financial leverage also significantly improved and Fitch Ratings expects these to remain healthy over 2016-2017. A strong polyethylene spread should continue to support SCC's performance in 2016, while a recovery in domestic demand for cement and building materials products and a ramp-up of SCC's new regional cement capacities, should be a key growth driver in 2017. 

 

Fitch expects SCC's EBITDA margin to remain above 15% in 2016-2017 from 11% in 2014 while keeping its FFO net adjusted leverage below 3x (2.8x-4.0x in 2011-2014). The improved leverage should provide more headroom for the company to pursue its regional expansion strategies. 

 

Business Diversification: The ratings are supported by well-diversified sources of revenue in its core businesses - CBM, chemicals, and packaging. There were track records of the diversification benefits in smoothing out cash flow over the past five years, e.g. when CBM growth reduced the pressure from a chemicals trough in 2012 or chemicals helped boost overall EBTDAR from a weak CBM performance in 2015. The continued focus on regional expansion should further benefit SCC's business profile over the long term.

 

Market Leader: SCC, as one of Thailand's largest conglomerates, holds the largest capacity and market share of cement, ceramic tiles, downstream chemicals and packaging paper in Thailand and some south-east Asian countries. Fitch expects SCC to maintain its leading market positions in each of its core businesses over the next five years. 

 

High Capex Remains: To pursue its regional expansion strategies mainly in south-east Asia, Fitch expects SCC to keep its capex high at about THB50bn-60bn per year over 2016-2017, despite the delayed investment of its largest petrochemical complex in Vietnam. 

 

Cyclicality Hinders Ratings: The ratings also factor in SCC's inherent exposure to the cyclicality of the chemicals and packaging businesses, and a lack of pricing power due to the bulk of its products being commodities.

 

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:

- Operating EBITDA to slightly increase in 2016, driven by strong chemicals business;

- Operating EBITDA of CBM business to be maintained or slightly drop; 

- Capex of THB50bn- THB60bn per year in 2016-2017; and

- Dividend payout ratio of 40%-50%.

 

RATING SENSITIVITIES

Positive: Future developments that may, individually or collectively, lead to positive rating action include:

- a large increase in cash flow generation from regional operations

- FFO net adjusted leverage sustained at below 2.75x. (2015: 2.47x expected based on preliminary results)

 

Negative: Future developments that may, individually or collectively, lead to negative rating action include:

- a weakening of the company's business and financial profile resulting in FFO net adjusted leverage sustained at above 3.75x.