TTA's high leverage worries Fitch

 In a statement, Fitch said that the TTA's leverage would remain high within a range of 4-5.5 times over the next three years, due to a prolonged downturn in the dry-bulk shipping industry and limited contribution from its newly invested integrated coal and logistics businesses.
 Fitch also expects that the company is likely to maintain its credit metrics consistent with the current rating over the medium term. Despite expected weak freight rates, the company's successful costcutting programme and ongoing diversification should help maintain its earnings and cash flow.
 TTA's performance on dry-bulk shipping continued deteriorating in the financial year ended September 2011 and in the first quarter of 2012 fiscal year.
 Although its offshore services have shown an improvement, its overall EBITDA in the 201 fiscal year decreased 18.1 per cent with the EBITDA margin falling to 13.4 per cent from 16.1 per cent in the previous year.
 In the first quarter of 2012 fiscal year, the downturn in dry-bulk shipping, together with disrupted operation at its coal logistics subsidiary, Unique Mining Services Plc, due to the impact from the Thai floods in October-November 2011, caused the company's EBITDA to fall 39 per cent on year with an EBITDA margin of 10.8 per cent.
 Fitch noted that the rating is constrained by the cyclical, volatile, and fragmented nature of the dry-bulk shipping industry. The industry has been in a downturn since late 2008 and the downturn is likely to persist over the next two to three years, as oversupply continues to put pressure on freight rates.
 The rating is supported by TTA's increased diversification to non-dry bulk shipping businesses i.e. the integrated coal and logistics businesses. Turn-around in the offshore marine service business should partly help compensate some earnings loss from drybulk shipping in 2012-2013. Over the longer term, new investments in non-dry bulk shipping should create synergies with drybulk shipping as well as help reduce cyclicality and stabilise cash flows.
 The rating also takes into account TTA's long experience and established position in the Southeast Asian market in both dry-bulk shipping and offshore marine services.
 On the other hand, negative rating action may arise from a deeper and longer-than-expected downturn in dry-bulk shipping beyond 2014, an interruption in the turnaround of offshore marine services, as well as continued large capital expenditure leading to financial leverage above 6 times on a sustained basis. In addition, deterioration in liquidity may also adversely affect the rating.