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Published on December 15, 2007

The outlook is negative. The ratings were initially placed on CreditWatch after the announcement of the company's corporate restructuring and delisting plan.

This rating action is based on the anticipated longer time horizon for Advance Agro to execute its restructuring plan. The negative outlook reflects uncertainties about Advance Agro's financial and business strategies and potential further weakening of the company's financial flexibility and transparency after privatisation. The current rating incorporates expectations that Advance Agro will be able to refinance its maturing debt, mostly working capital facilities, in the near term.

The unavailability of refinancing debt funding will put the rating under further downward pressure.

"The rating on Advance Agro is constrained by the company's highly leveraged financial risk profile, exposure to volatile and cyclical pulp and paper prices and single-site concentration," said S&P credit analyst Yasmin Wirjawan.

"These weaknesses are partially offset by Advance Agro's integrated and efficient operations, favourable market position and geographical diversity through exports."

Advance Agro's liquidity is weak. The company faces refinancing risks and is dependent on the smooth rollover of its short-term credit facilities. As at September 30, the company had debt of Bt4.1 billion due within the next 12 months, compared with a cash balance of about Bt300 million. This risk is partially offset by the operating cash flow of about Bt2 billion a year and unused working capital facilities of Bt2 billion.

"The outlook could be revised to 'stable' if the company's business strategy and financial policy post-restructuring are not perceived to lead to a material weakening of Advanced Agro's credit quality," Wirjawan said.

"In addition, it will have to be accompanied by a steady improvement in cash flow generation, which could help strengthen the company's liquidity position. As the company will potentially be privatised in the near term, an outlook revision would also be based on the expectation that Advance Agro will not be required to provide additional financing or other types of support to related parties or shareholders."

The Nation

SINGAPORE