Bangkok--24 Nov--Fitch Ratings
Fitch Ratings (Thailand) Limited has placed WHA Corporation Public Company Limited’s ‘A-(tha)’ National Long-Term Rating, ‘F2(tha)’ National Short-Term Rating and ‘A-(tha)’ National Long-Term Rating on its outstanding senior unsecured debentures on Rating Watch Negative (RWN).
The rating action follows the Thailand-based warehouse developer’s announcement of a plan to acquire Hemaraj Land and Development Public Company Limited by means of a conditional voluntary tender offer.
Resolution of the RWN will consider the business and financial integration aspects should WHA proceed with the acquisition. The ratings may be downgraded or affirmed, depending on the business and financial profiles of the company after the acquisition.
The transaction is subject to several conditions, such as shareholder approval for the asset acquisition and rights offering as well as the final percentage of total shares to be acquired and the financing plan.
Key Rating Drivers
Large Acquisition and Limited Rating Headroom: WHA aims to acquire no less than 50% of Hemaraj’s total shares, with a total investment cost of at least THB21.9bn. This compares to WHA’s total assets of THB16.6bn at end-September 2014. The acquisition is likely to be more than 60% debt financed, depending on the final number of Hemaraj shares to be acquired. Should WHA proceed with the acquisition, its financial leverage could increase by 1x-2x, also depending on the dividend payout policy and/or the operating performance of Hemaraj. Fitch had also factored the company’s planned debt reduction over the next three years. Prior to this announcement, WHA’s rating headroom was limited given its expected financial leverage, as measured by FFO adjusted leverage, of 5.5x-6.0x at end-2014 following a plan to sell assets to a real estate investment trust in December 2014 (end-September 2014: 7.4x).
Scale and Diversification Benefits: The acquisition would not only increase WHA’s operating scale, but also provide product diversification and upward integration. The acquisition will see WHA expand into industrial estate and facilities development, which Fitch considers to have a higher business risk than the company’s existing operations in built-to-suit warehouses for rent. On the other hand, Hemaraj’s utilities service business is likely to increase the proportion of recurring income to the company and mitigate the volatility of revenues from land sales.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating
action include:
- The completion of the acquisition leading to FFO adjusted leverage of above 4.5x on a sustained basis, and
- The business profile and risk profile of the integrated entity do not improve .
- The ratings could be downgraded by more than one notch if the financial leverage increases significantly.
Positive rating action is not anticipated in view of the potential acquisition