TRIS Rating Affirms Rating of “STECON” at “BBB-/Stable”, Affirms Current Ratings and Assigns New Issue Rating of “ITD” at “BBB+/Stable”

TRIS Rating Co., Ltd. has affirmed the company rating of Sino-Thai Engineering & Construction PLC (STECON) at “BBB-” with “stable” outlook. The rating reflects STECON’s market position as one of Thailand’s top three construction contractors, its specialization in the civil construction of power and petrochemical plants, lengthy track records in both the private and public sectors, and the government’s policy to invest in infrastructure projects to boost the economy. However, these strengths are partially offset by the risks of cost overruns, in particular for long duration fixed-price contracts, continued pressure on construction margins and intense competition resulting from a slowdown on both public and private construction investments. The “stable” outlook reflects TRIS Rating’s expectation that STECON’s operating performance will further improve in 2009 and that STECON will be able to maintain a conservative balance sheet. In addition, the company is expected to be conservative on its bidding for new projects. STECON is one of the top three construction contractors in Thailand, with a strong market position in public works construction. The company is ranked as a class 1 licensed contractor for almost all government authorities and state enterprises. In addition to infrastructure construction, the company specializes and is well-recognized in mechanical and electrical (M&E) services for power plants and petrochemical plants, and steel fabrication work. Since 2004, STECON has been awarded six power plant contracts worth Bt12,199 million. The ratio of revenue from three divisions (infrastructure : building : energy) in 2007 was 41:24:29. Approximately 70% of the company’s construction revenue in 2007 was generated from public projects. As of August 2008, STECON’s backlog was valued at Bt15,631 million, which rose by 8.63% from Bt14,389 million as of December 2007. STECON’s operating performance gradually improved from a massive loss in 2006. The adjusted operating margin improved from -8.81% in 2006 to 3.09% in 2007, and 4.74% in the first six months of 2008. TRIS Rating believes that STECON’s operating margin will gradually improve next year, considering that the unprofitable projects will be nearly completed in 2008. In addition, high margin projects from steel structure work will be major contributors in 2009 revenue. Though STECON’s operation was vulnerable during the past few years, its capital structure remained strong. The company kept its leverage low by partially financing business through suppliers’ credit and advance payment received from its clients. However, cash inflow from advance payment is not sustainable and depends on new orders received. As of June 2008, STECON’s total debt was Bt1,757 million, which increased slightly from Bt1,682 million at the end of 2007. Total debt to capitalization ratio was strong at 30.78%. However, the adjusted earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage ratio during the first six months of 2008 dropped to 5.50 times from 6.65 times in 2007 due to higher debt and financing costs. Funds from operations (FFO) to total debt ratio was 7.53% (non-annualized). TRIS Rating has affirmed the company rating of Italian-Thai Development PLC (ITD) and has affirmed the rating of ITD’s existing debentures at “BBB+”. At the same time, TRIS Rating has assigned a “BBB+” rating to ITD’s new issue of Bt2,000 million in senior debentures. The outlook remains “stable”. The proceeds from new debentures will be used to refinance existing debt and fund ongoing operations. The ratings reflect ITD’s position as the largest general construction contractor in Thailand, its strong backlog, broad product line, geographic diversity, backward integration, and the government’s policy to invest in infrastructure projects to boost the economy. These strengths are partly offset by the inherent risk of fixed-price contracts, the cyclical nature of the Engineering and Construction industry, intense competition, and the company’s rising financial leverage. The “stable” outlook reflects TRIS Rating’s expectation that ITD’s earnings will improve, resulting in a strengthened equity position. The company is also expected to pursue a debt reduction policy, utilizing the proceeds from the sale of investments to repay debt. TRIS Rating expects the company to be more conservative with its capital structure so that it does not jeopardize the current financial profile. ITD is Thailand’s largest construction contractor. Its leading market position is supported by its strong track record, good relationships with both private and public sector clients, economies of scale, self-sufficiency in key materials, an extensive machinery and equipment fleet, and an adequate supply of skilled labor and engineers. ITD’s total revenue in 2007 was Bt45,623 million, almost triple the revenue of Thailand’s second largest construction contractor. The company operates nine business divisions, three foreign branches (in Taiwan, the Philippines and India), and three foreign subsidiaries (in Myanmar, India and Indonesia). Although the strategy to diversify the revenue base abroad helps maintain sales volume during slowdowns in the domestic construction market, the strategy creates a certain extent of risk exposure from unfamiliar business environments. The group’s backlog as of 9 September 2008 was Bt100,185 million, including Bt26,127 million in awarded projects waiting to be signed. Around 67% of works on hand are from overseas projects mainly in India, Laos and Indonesia. ITD’s operating performance in the first half of 2008 was hit by the unprecedented rises of major material prices, such as steel products and fuel. This was because much of the revenue generated in the first half of 2008 was structural and earthworks which are sensitive to steel and fuel prices. In addition, during the second quarter of 2008, ITD revised estimated cost of various projects to reflect a higher average price for steel (Bt40/kg), and fuel (Bt34/litre). The company also recorded a loss of Bt372 million on the Nam Theun II hydroelectric dam project. The low operating margin was also a result of higher selling general and administrative (SG&A) expenses due to provisions for claims against a subsidiary and the administration expenses of new or recently opened subsidiaries. Thus, adjusted operating margin in the first six months of 2008 fell to 4.9%, compared with 9.1% in the same period of the prior year. However, TRIS Rating views that ITD’s operating margin in 2009 will improve as substantial portions of projects signed in 2006 and 2007 at low material prices will be depleted and be replaced with new contracts that incorporate higher materials prices. In addition, around 81% of works on hand are public projects, which the company would receive some compensation for raw material price changes. Sino-Thai Engineering & Construction PLC (STECON) Company Rating: Affirmed at BBB- Rating Outlook: Stable Italian-Thai Development PLC (ITD) Company Rating: Affirmed at BBB+ Issue Ratings: ITD099A: Bt706.7 million senior debentures due 2009 Affirmed at BBB+ ITD109A: Bt2,000 million senior debentures due 2010 BBB+ Rating Outlook: Stable For more information please contact: TRIS Rating Co., Ltd. (TRIS Rating) Tel: 66 (0) 2231-3011 Ext. 500, Fax: 66 (0) 2231-3012 E-mail: [email protected]

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