OREANDA-NEWS. Fitch Ratings (Thailand) Limited has assigned The Siam Cement Public Company Limited's (SCC) new THB10bn unsecured and unsubordinated debenture No. 2/2558 due 2019 a National Long-Term Rating of 'A(tha)'.

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

Leading Market Positions: SCC is one of Thailand's largest conglomerates, with three diversified core businesses in cement and building materials, chemicals, and packaging. SCC is the largest manufacturer of cement, ceramic tiles, downstream chemicals and packaging paper in Thailand and some south-east Asian countries, based on capacity and market share. Fitch Ratings expects the company to maintain its leading market positions in Thailand and south-east Asia in each of its core businesses over the next five years.

Business Diversification: The ratings are supported by SCC's well-diversified sources of revenue from its various businesses. SCC's focus on regional expansion and new products development is positive for SCC's business profile over the longer term, although the earnings contribution from regional operations is likely to remain small in 2015.

High Capex: We expect SCC's capex to remain high at about THB50bn-60bn per year in 2015-2016. This will be used mainly to expand overseas, particularly in south-east Asia, via greenfield projects and acquisitions. Fitch expects SCC's net adjusted debt/EBITDAR, including dividends from associates, to stay at about 3.0x in 2015-2016 (12 months ended 2Q15: 2.3x), and trend below 3.0x thereafter as the regional operations start to ramp up.

Growing EBITDA: Fitch expects SCC's operating EBITDA to continue to grow in 2015 (1H15: operating EBITDA growth 36%). The chemicals business is likely to remain a key earning driver in 2015, driven by a higher polyethylene spread, while cement and building materials' operating EBITDA growth will remain in the low single digits due to a slow recovery of domestic construction activities.

Cyclicality Hinders Ratings: The ratings also take into account SCC's inherent exposure to the cyclicality of the chemicals and packaging businesses, and a lack of pricing power because the majority of its products are commodities.

KEY ASSUMPTIONS

Fitch's key assumptions within our rating case for the issuer include:
- Operating EBITDA to increase in 2015, driven by higher petrochemical product-feed margin;
- Operating EBITDA of cement and building materials business to be maintained or increase slightly;
- Capex of THB50bn-60bn per year in 2015-2016; and
- Dividend payout ratio of 40%-50%.

RATING SENSITIVITIES

Positive: Developments that may, individually or collectively, lead to positive rating action include:
- a large increase in cash flow generation from regional operations
- a FFO-net adjusted leverage sustained at below 2.75x. (12 months ended 2Q15: 2.41x)

Negative: 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.