The ratings of IVL and its debentures reflect the company's strong position as a leading worldwide producer in the polyester value chain, its competitive cost position, and efficient productivity stemming from a vertically integrated process along the polyester value chain, plus its geographically diverse customer and production base spanning over the globe. The ratings also take into consideration the capability and experience of the management team, as well as IVL's access to key technologies. However, the ratings are constrained by the volatile nature of the petrochemical industry, an ongoing oversupply of purified terephthalic acid (PTA) in Asia, and the uncertain outlook of the global economy, which is pressuring the company's profitability. In addition, the company's balance sheet has been constrained by its investment plans, which are largely financed with debts.
The "stable" outlook is based on TRIS Rating's assumption that the industry margin will gradually recover from the current level. In addition, IVL will be able to demonstrate more stable cash flow generation and maintain sufficient liquidity to act as a cushion against the volatility inherent in the petrochemical industry. Rating could be pressured if industry down cycle is prolonged and reduce the funds from operations (FFO) to total debt ratio below 15% on a sustainable basis.
The upside factor for IVL's ratings could occur if the company's cash flow generation improves significantly which strengthens its liquidity and stabilize FFO to total adjusted debt ratio over 25%.
IVL was established by the Lohia family on 21 February 2003 as a holding company and was listed on the Stock Exchange of Thailand (SET) on 5 February 2010. Currently, the Lohia family holds a 66.4% stake in IVL. The company invests mainly in businesses along the polyester value chain. As of 30 September 2015, IVL's total installed capacity was 8.5 million tonnes per annum (MTA), of which 49% was polyethylene terephthalate (PET), 27% was PTA, 18% was polyester fiber equivalent, and 6% was monoethylene glycol (MEG) equivalent. In the polyester value chain, PTA and MEG are the major feedstocks used to produce PET and polyester fiber.
As of September 2015, IVL's facilities were located in 20 countries across four continents: Asia, Europe, North America, and Africa. IVL's business model is aimed at full vertical integration and a diversified presence around the globe. This model should enhance the company's profitability and competitive advantage, as well as reduce the risk associated with the volatility of the petrochemical industry and trade barriers.
For the first nine months of 2015, IVL's total revenue was Bt177,219 million, a 6% year-on-year
(y-o-y) decrease, mainly due to a lower average selling price. In the third quarter of 2015, the average selling price dropped in tandem with the crude oil price. As a result, IVL's financial performance recorded an inventory loss of about Bt1,600 million in this quarter. In addition to inventory loss, IVL's MEG plant shutdown for maintenance for about 30 days in the third quarter of 2015. Both factors caused IVL's operating margin (operating income before depreciation and amortization, as percentage of sales) decline from 8.1% in the first half of 2015 to 7.6% in the first nine months of 2015. However, the margin showed an improving trend compared to 5.5% in 2014. The rise partly reflects an improving in the PTA margin, and the mix of high value added (HVA) products in IVL's portfolio. IVL's profitability, in terms of earnings before interest, tax, depreciation, and amortization (EBITDA) per tonne of production volume, was US$87 per tonne for the first nine months of 2015. The company generated FFO of Bt12,676 million, while the FFO to total adjusted debt ratio was 15.4% (annualized with trailing 12 months).
At the end of September 2015, the company's total adjusted debt for hybrid debentures (total adjusted debt) was Bt92,435 million, with the total adjusted debt to capitalization ratio of 54.4%. Looking forward, the company's debt is expected to increase due to its acquisition plans. TRIS Rating's base case scenario has incorporated the company's acquisition budget and capital expenditure plans of aboutBt117,000 million spending over 2015-2018. IVL plans to expand capacity of some existing plants and increase the HVA production line. The acquisition budget includes Bt16,000 million that was already spent in the first half of 2015 and the company's recent announcement that it will acquire a 0.4 MTA ethylene cracker in the United States (US), 0.7 MTA integrated PTA plants in Spain and 0.2 MTA PET plant in India. With its investment and capital expenditure budget, the company's total installed capacity will increase from 8.5 MTA to about 11.8 MTA by 2018. The production capacity for HVA products will further increase from about 22% of the current total production to 24%-25% by 2018. TRIS Rating expects that IVL will maintain the ratio of net interest bearing debt to equity at lower than 1 times, in accordance with the company's policy. Based on the expected mix of HVA products and the gradual recovery of the industry margin, TRIS Rating's projection expects the company's profitability in terms of EBITDA per tonne of production will increase over US$100 per tonne in 2016. The company's FFO is expected to exceed Bt20,000 million in 2016 and onward, due to the increases in profitability and capacity. This level of FFO is sufficient to service IVL's debt obligations. Approximately Bt10,000 million in debt will come due in 2016, while the Bt13,000-Bt14,000 million debts will be due annually during 2017 and 2018. The FFO to total adjusted debt ratio is expected to range 15%-23% over the next three years.
Indorama Ventures PLC (IVL)
Company Rating: A+
Issue Ratings:
IVL16OA: Bt210 million senior unsecured debentures due 2016 A+
IVL16OB: Bt2,690 million senior unsecured debentures due 2016 A+
IVl173A: Bt1,500 million senior unsecured debentures due 2017 A+
IVL174A: Bt1,500 million senior unsecured debentures due 2017 A+
IVL174B: Bt2,500 million senior unsecured debentures due 2017 A+
IVL186A: Bt550 million senior unsecured debentures due 2018 A+
IVL18OA: Bt98 million senior unsecured debentures due 2018 A+
IVL18OB: Bt1,302 million senior unsecured debentures due 2018 A+
IVL18DA: Bt780 million senior unsecured debentures due 2018 A+
IVL193A: Bt800 million senior unsecured debentures due 2019 A+
IVL194A: Bt1,500 million senior unsecured debentures due 2019 A+
IVL206A: Bt520 million senior unsecured debentures due 2020 A+
IVL20DA: Bt880 million senior unsecured debentures due 2020 A+
IVL21OA: Bt37 million senior unsecured debentures due 2021 A+
IVL21OB: Bt3,163 million senior unsecured debentures due 2021 A+
IVL224A: Bt1,250.5 million senior unsecured debentures due 2022 A+
IVL224B: Bt2,649.5 million senior unsecured debentures due 2022 A+
IVL22DA: Bt1,645 million senior unsecured debentures due 2022 A+
IVL236A: Bt1,100 million senior unsecured debentures due 2023 A+
IVL243A: Bt1,400 million senior unsecured debentures due 2024 A+
IVL24DA: Bt1,475 million senior unsecured debentures due 2024 A+
IVL14PA: Bt15,000 million subordinated capital debentures A-
Up to Bt1,150 million senior unsecured debentures due within 2025 A+
Rating Outlook: Stable