D&L Industries Inc., the country’s largest specialty food ingredients, plastics and oleochemicals firm, has been assigned the highest issue credit rating of PRS Aaa with a stable outlook for its maiden bond issuance of up to P5 billion.
Philippine Rating Services Corporation (PhilRatings) said in a statement that the triple-A rating was assigned to D&L’s proposed P3 billion bond issuance, with an Oversubscription Option of up to P2 billion.
Obligations rated PRS Aaa are of the highest quality with minimal credit risk and the obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
A Stable Outlook is assigned when a rating is likely to be maintained or to remain unchanged in the next twelve months.
PhilRatings said the rating and outlook were assigned given the strong market position in the industries that D&L is engaged in as well as the diversification of products it offered and markets served.
The ratings firm also considered that bulk of D&L’s revenues from innovation-driven, high margin specialty products, protecting the company from keen competition and ensuring continued demand for its products.
PhilRatings also noted that, while revenues have been fluctuating historically, net income was generally on an uptrend prior to the pandemic while margins were maintained within a narrow band.
Also a factor is D&L’s relatively conservative debt management and adequate cash flow generation.
“The diversification in terms of D&L’s product offerings and customer base results in developments in one sector balancing out developments in another,” said PhilRatings.
It added that, “The importance of such was highlighted amidst the COVID-19 pandemic, as for instance, lower volumes from hotels, restaurants and caterers given the pandemic and quarantine restrictions were partly offset by demand from clients belonging to other sectors such as dairy, biscuits and noodles since more people stayed, worked and dined at home.”
PhilRatings also positively noted the geographical diversification in D&L’s revenue sources, given that a sizable portion (29 percent in 2020 and 34 percent in the first quarter of 2021) of the Company’s revenues are from exports.
“The significant share of exports to total revenues also reflects D&L’s capability to compete in other markets, meeting customer specifications – even in countries aside from the Philippines,” it explained.
At present, D&L relies fully on short-term financing for its funding requirements. PhilRatings notes that the Company’s proposed bond issuance is a step towards improving its debt mix and may put the
Company in a better position to benefit from market opportunities that may arise.
Meanwhile, PhilRatings said “Sustained projected increase in total revenues will continue to support growth in cash flows and will place D&L in a very good position to pay off its proposed bonds in three and in five years.”