Reuters logo
Fitch Rates CP ALL's Hybrids 'BBB(tha)', Unsecured Bonds 'A-(tha)'
July 4, 2017 / 4:24 AM / 5 months ago

Fitch Rates CP ALL's Hybrids 'BBB(tha)', Unsecured Bonds 'A-(tha)'

(The following statement was released by the rating agency) BANGKOK, July 04 (Fitch) Fitch Ratings (Thailand) Limited has assigned CP ALL Public Company Limited's (CP ALL, A(tha)/Stable) up to THB10 billion of new subordinated perpetual debentures a 'BBB(tha)' National Long-Term Rating. Simultaneously, Fitch has assigned CP ALL's up to THB3 billion of new senior unsecured bonds due in 2027 an 'A-(tha)' National Long-Term Rating. The subordinated perpetual debentures, which are payable upon dissolution and give the issuer rights to early redemption and unconditional interest deferral, qualify for 50% equity credit under Fitch's "Non-Financial Corporates Hybrids Treatment and Notching Criteria". This categorisation is supported by the subordination of the debentures to other debt, the debentures' deemed effective maturity of more than five years, and the issuer's right to defer coupon payments. Fitch assesses the effective maturity of the subordinated perpetual debentures to be on the 10th anniversary of the issuance, due to the debentures' coupon step-up of over 100bp from year 11. Therefore, the 50% equity credit will change to 0% five years before the effective maturity date. The rating on the senior unsecured bonds is one notch below CP ALL's 'A(tha)' National Long-Term Rating due to a significant amount of prior-ranking debt, which made up 3.7x of the company's EBITDA in the 12 months to March 2017. The proceeds from the bonds will be used for refinancing maturing bonds and for working capital. KEY RATING DRIVERS Rating Reflects Deep Subordination: The perpetual debentures have been notched down by three notches from CP ALL's National Long-Term Rating because of their deep subordination and higher-than-usual loss-absorption. The debentures are notched down from the National Rating by more than the standard two notches due to a significant amount of prior ranking debt, which also results in CP ALL's senior unsecured debt being rated one notch below the company's rating. High Financial Leverage: Fitch expects CP ALL's FFO-adjusted net leverage to gradually decrease to about 4.0x in 2018. CP ALL has been deleveraging more slowly than previously expected (i.e. below 3.5x by 2018) because of a weak domestic economy over the past two years. Sales of shares in subsidiary Siam Makro Public Company Limited (Makro) are also unlikely to be carried out over the next 12-18 months. Moderate-but-Defensive Growth: Fitch expects CP ALL's sales to increase by 9%-10% per year in 2017-2018, driven mainly by new store openings and a recovery in same-store sales growth to 3.0%-4.0% a year for both 7-Eleven and Makro stores (1Q17: 1.2% and 2.4%, respectively), in line with the domestic economic recovery. The company also continues to benefit from the "defensive" nature of its business, which sells daily essentials with low revenue and margin volatility; its medium-term growth potential is still supported by Thailand's immature market for modern-food retailing. Leading Market Position: We believe CP ALL is likely to maintain its leading position despite intense competition. The company has more than 9,700 stores nationwide, and a more-than-60% share of the convenience-store market in Thailand, far more than its closest rival. Its dominance is supported by its large network and coverage area, along with well-established functions such as logistics, supply and maintenance, and staff training and development. Strong Retail Brand: CP ALL operates 7-Eleven stores, a leading international brand of convenience chain stores. CP ALL was granted an area licence agreement for Thailand from 7-Eleven, Inc., USA, with the first store opening in 1989. Thailand is now the second-largest international licensee of 7-Eleven, Inc., after Japan. DERIVATION SUMMARY CP ALL has a strong domestic market position as the largest convenience store chain in Thailand, similar to The Siam Cement Public Company Limited (SCC, A(tha)/Positive), the largest cement and downstream petrochemicals producer in Thailand and Thai Oil Public Company Limited (TOP, AA-(tha)/Stable), the largest oil refiner in Thailand. However, CP ALL has a stronger competitive position, with its market share significantly larger than that of its closest rival. CP ALL also has lower business risk than SCC and TOP, which are exposed to cyclical demand for their products and the fluctuation of commodity price. This is reflected in CP ALL's more stable EBITDAR margin. CP ALL's financial leverage is, however, significantly higher than both peers, due to the debt incurred from the leveraged buy-out of Makro in 2013. Given the sector's low capital intensiveness, CP ALL's financial leverage should decrease over time. CP ALL's lower business risk should compensate for its higher financial leverage than SCC. However, the financial leverage of TOP, which is very low at about 1.0x, warrants a higher rating. TOP's credit rating is also notched up to reflect its linkage to the PTT group. KEY ASSUMPTIONS Fitch's key assumptions within our rating case for the issuer include: - Revenue growth of 9%-10% per year in 2017-2018; - EBITDAR margin to improve to 10.2%-10.4% in 2017-2018; - 700 new 7-Eleven stores per year in 2017-2018 and four new large-format stores per year for Makro in 2017-2018. RATING SENSITIVITIES Future Developments That May, Individually or Collectively, Lead to Positive Rating Action - FFO-adjusted net leverage at less than 3.5x (end-March 2017: 5.3x) Future Developments That May, Individually or Collectively, Lead to Negative Rating Action - A failure to reduce FFO-adjusted net leverage to below 4.5x by 2018 - Deterioration in EBITDAR margin to below 7.5% on a sustained basis (1Q17: 10.4%) LIQUIDITY Strong Liquidity: CP ALL had total debt of THB193 billion as of end-March 2017. About 10.4% will be due in the 12 months from end-March 2017. About 94% of total debt is Thai baht bonds, 69% of which are secured by Makro shares. The liquidity is mainly supported by its cash balance of THB24.7 billion at end-March 2017, its strong cash flow generation as well as its strong access to debt capital markets. Contact: Primary Analyst Somruedee Chaiworarat Director +66 2108 0160 Fitch Ratings (Thailand) Limited Level 17, Park Ventures, 57 Wireless Road, Lumpini, Patumwan, Bangkok 10330 Secondary Analyst Nichaya Seamanontaprinya Associate Director +66 2108 0161 Committee Chairperson Jeong Min Pak Senior Director +82 2 3278 8360 Summary of Financial Statement Adjustments - - The outstanding amount of subordinated perpetual debentures is based on the face value due at maturity, instead of net of issuance cost shown in the audited financial statements. Media Relations: Leslie Tan, Singapore, Tel: +65 67 96 7234, Email: leslie.tan@fitchratings.com. Additional information is available on www.fitchratings.com Applicable Criteria Criteria for Rating Non-Financial Corporates (pub. 10 Mar 2017) here National Scale Ratings Criteria (pub. 07 Mar 2017) here Non-Financial Corporates Hybrids Treatment and Notching Criteria (pub. 27 Apr 2017) here Additional Disclosures Solicitation Status here#solicitation Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below