Fitch Ratings (Thailand), a subsidiary of UK-based Fitch Ibca, has today commented that while shareholder approval of the amalgamation of National Petrochemical Plc. (NPC) with Thai Olefins Plc. (TOC) is scheduled for 11 August 2005–a situation which may, under the terms of its outstanding bonds, constitute an event of default (EOD). Fitch does not intend to take, at this stage, any rating action on NPC’s existing AA- (tha), National Long-term and F1+ (tha) National Short-term ratings.
The agency believes that NPC should have ability to repay its bonds (ith outstanding principal of approximately THB2 billion) in the event that its bonds are accelerated. The ratings of NPC remain on Rating Watch Negative, where they were placed on 14 March 2005.
The agency notes that the credit metrics and risk profile of NPC could potentially weaken on its proposed amalgamation with TOC, though the rating of the amalgamated entity should relatively remain strong in the single A (tha) National rating range.
Pursuant to the process set out by the law, the proposed amalgamation of NPC and TOC would result in the dissolution of both companies. Under the terms of the bonds, the approval of NPC’s shareholders to amalgamate with other entities resulting in a winding-up of the company may constitute an EOD.
The bond terms further provide that the bondholders shall then call a meeting in order to determine the remedy for the EOD. Should NPC fail to remedy the EOD within the specified time period, the bonds would immediately become due and payable. Fitch views that this mechanism is, in effect, a protection for bondholders enabling them to be prepaid in full if the amalgamation results in an adverse change in their credit exposure.
At end-June 2005, NPC had approximately THB1.6bn of cash and short-term investments and should be in a comfortable position to obtain refinancing if needed given its strong financial position. Future rating actions will depend upon the remedy of the EOD if triggered or the timely and full repayment of the bonds if accelerated.
The company has indicated that there will not be any coercive distressed debt exchange and that the bonds will be repaid in full if accelerated, implying no economic loss to the bondholders.
Fitch will continue to monitor the proposed amalgamation and its consequences on NPC’s creditworthiness and the ratings assigned to its bonds.
The agency believes that NPC should have ability to repay its bonds (ith outstanding principal of approximately THB2 billion) in the event that its bonds are accelerated. The ratings of NPC remain on Rating Watch Negative, where they were placed on 14 March 2005.
The agency notes that the credit metrics and risk profile of NPC could potentially weaken on its proposed amalgamation with TOC, though the rating of the amalgamated entity should relatively remain strong in the single A (tha) National rating range.
Pursuant to the process set out by the law, the proposed amalgamation of NPC and TOC would result in the dissolution of both companies. Under the terms of the bonds, the approval of NPC’s shareholders to amalgamate with other entities resulting in a winding-up of the company may constitute an EOD.
The bond terms further provide that the bondholders shall then call a meeting in order to determine the remedy for the EOD. Should NPC fail to remedy the EOD within the specified time period, the bonds would immediately become due and payable. Fitch views that this mechanism is, in effect, a protection for bondholders enabling them to be prepaid in full if the amalgamation results in an adverse change in their credit exposure.
At end-June 2005, NPC had approximately THB1.6bn of cash and short-term investments and should be in a comfortable position to obtain refinancing if needed given its strong financial position. Future rating actions will depend upon the remedy of the EOD if triggered or the timely and full repayment of the bonds if accelerated.
The company has indicated that there will not be any coercive distressed debt exchange and that the bonds will be repaid in full if accelerated, implying no economic loss to the bondholders.
Fitch will continue to monitor the proposed amalgamation and its consequences on NPC’s creditworthiness and the ratings assigned to its bonds.