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29 Apr 2010
Hong Kong, April 29, 2010 -- Moody's Investors Service has assigned a B1 corporate family rating
to Finspace S.A. (Finspace). Moody's has also
assigned a B1 senior unsecured rating to Finspace's proposed USD
bond issue. The outlook for both ratings is stable. This
is the first time that Moody's has assigned ratings to Finspace.
Finspace plans to use the proceeds of the bond issue for its plate mill
expansion, debt refinancing, acquisition and general corporate
"Finspace's B1 rating reflects its differentiated and strong
position in the niche piping market," said Ken Chan,
a Moody's Vice President, adding that "its low volume
and highly customized product business model allows for better profit
margins than its peers."
The company's prowess is backed by a wide variety of product offerings
and its in-house ability to offer one-stop shopping solutions
Moreover, the company minimizes the risk of margin volatility through
cautious pricing, which includes back-to-back price
factoring of raw material costs.
"The rating is constrained, however, by the company's
small scale and fast growth, existence of related party transactions
with the group's regional sales offices as well as its short operating
track record in the pipe, pressure vessels, and coating business
segments," commented Chan.
"Additionally, Finspace's working capital requirements
are vulnerable to volatility stemming from changes in steel prices.
Long production lead times for fittings and pipe products further exacerbate
the pressure on working capital, especially during commodity price
up-cycles," said Chan.
"The company also has weak balance sheet liquidity and high reliance
on short-term bank lines. However, its projected Debt/EBITDA
of around 4.0x over the next two years is appropriate for the current
B1 rating," said Chan.
"Construction of the plate mill will raise the company's debt
and execution risk in the next two years, before it can start reaping
any financial benefits when the plate mill starts operating in 2012.
However, the plate mill will integrate vertically with the company's
production processes, enhance efficiency and profitability,
and cut production lead times. The plate mill will allow more product
customization and also help retain and protect Finspace's in-house
The stable outlook reflects Moody's expectation that the company
will prudently carry out its business plan, further solidify its
market position in the global pipe industry, and maintain adequate
bank lines to mitigate the volatility in working capital.
Although near-term upward rating pressure is limited, positive
rating implications may arise if the company 1) can complete its plate
mill construction as planned; 2) enhance its balance sheet liquidity
and lower its reliance on uncommitted working capital facilities;
3) lower its related party transactions; and 4) expand its earning
base through its business model, such that Debt/EBITDA declines
to less than 2.5-3.0x and EBITDA/Interest rises to
3.5-4.0x or higher.
Downward rating pressure could arise if 1) the company's plate mill
experiences significant construction delays and cost overruns; 2)
the company fails to implement its business plan, and thus weaken
its market position in the global pipe industry; or 3) it makes any
aggressive debt-funded acquisitions, such that its Debt/EBITDA
rises above 4.5-5.0x and EBITDA/Interest declines
to less than below 2.0-2.5x.
Finspace's rating was assigned by evaluating factors Moody's
believe are relevant to the issuer's credit profile, such
as 1) business risk and the competitive position of the company versus
others in its industry; 2) its balance sheet and financial risk;
3) the projected performance over the near to medium term; and 4)
management's track record and tolerance for risk.
These attributes were compared against those of other issuers within and
outside Finspace's core industry; thus, Moody's considers
Finspace's rating comparable to those of other issuers with similar
Finspace S.A., also known as the Canadoil Group,
produces specialized pipes, vessels, and fittings for oil
and gas, chemical, refining, power, water,
and infrastructure projects worldwide. Finspace is unique as a
global company that can provide end-customers one-stop shopping
integrated solutions. The Group has manufacturing facilities in
Thailand, Canada, and Italy, with sales offices in Thailand,
Korea, Dubai, Canada and Italy.
Vice President - Senior Analyst
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
Moody's assigns first-time B1 rating to Finspace
Corporate Finance Group
Moody's Asia Pacific Ltd.
JOURNALISTS: (852) 2916-1150
SUBSCRIBERS: (852) 3551-3077
No Related Data.
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