Despite the sluggish economic conditions, the credit outlook of major Thai corporations should remain unscathed thanks to their manageable short-term debt, strong cash buffer and abundant liquidity, says Standard and Poor's (S&P) Ratings Services.
Bertrand Jabouley, S&P's Singapore-based director for corporate ratings in Asia-Pacific, said companies listed on the SET50 index excluding seven financial institutions had cash equivalents totalling 493 billion baht at the end of last year, which matched their short-term debts assessed at 497 billion.
"It means that Thai corporations had enough cash at the end of last year to cover their short-term debt maturity. From what we can observe in the market, there is a very manageable liquidity risk for Thai corporations, so the short-term fundamentals are solid," he said.
Jabouley: Political uncertainty a risk
Net debt to earnings before interest, taxes, depreciation and amortisation was about two for these listed companies in 2014, indicating a stable situation, Mr Jabouley said, adding that the ratio was expected to be similar this year.
He said certain corporations were also resilient to the economic slowdown, as demand for their products, particularly in the energy, electricity and telecommunication sectors, was essentially inelastic.
S&P has rated seven Thai corporations among those listed on the SET50 index — they are engaged in energy, power generation and telecommunications — designating a stable outlook for each one.
Large companies' financial position is in a healthy shape, with a stable debt-to-equity ratio excluding those in the finance industry at a mere 1.29 at the end of March even though the country is struggling with an economic slowdown. A low gearing ratio indicates companies have less debt.
Mr Jabouley said capital expenditure, dividends and merger and acquisition activities were primary drivers of corporate debt accumulation in the energy and telecommunications segments rather than lethargic economic conditions or the decline in oil prices.
However, Thailand's sovereign credit-rating outlook has a potential effect on the rating of state-owned enterprises such as PTT Plc and the Electricity Generating Authority of Thailand, but listed telecommunications service providers are much less vulnerable to the country's credit-rating outlook, he said.
S&P has given Thailand a sovereign credit rating of BBB+ with a stable outlook. Political chaos, which has flared up from time to time over the past 10 years or so, has been a major factor preventing the international credit-rating agency from upgrading Thailand's credit rating.
"Thailand's strong external balance sheet and liquidity, modest level of government debt and history of effective monetary and fiscal policies support the sovereign credit rating. These strengths are weighed against the economy's relatively low-income level and the country's continued political uncertainty," the ratings agency said in its report on Thailand's sovereign credit-rating outlook.
"We may lower the ratings, however, if political and institutional stability deteriorates beyond what we have observed in the past seven years.
"We may also lower the ratings if the country's fiscal or economic indicators weaken significantly."
Irrational corporate spending and commodity price exposure are considered the main downside risks for corporations' credit-rating outlook, but a well-established business model and experienced management team are key strengths that could cushion against those risks, Mr Jabouley said.
On the effects of the baht's depreciation, companies listed on the SET50 index have made 80% of their revenue in Thailand, while their baht-denominated debts are estimated at 80% compared with 15% US-dollar-denominated debts and 5% for a denomination in other currencies.
Therefore, risks associated with foreign exchange exposure are manageable for these companies, Mr Jabouley said.
The weakening baht is deemed an advantage for Thailand's exporters, but the currency's retreat would induce higher costs for imports, he added.