Bangkok--16 Sep--Fitch Ratings
Fitch Ratings (Thailand) Limited has assigned Thailand-based property investment company WHA Corporation Public Company Limited’s (WHA) senior unsecured debentures of up to THB2.7bn a ‘A-(tha)’ National Long-Term Rating.
The debentures will be issued in three tranches due in 2016, 2017 and 2018. The proceeds will be used to refinance some of WHA’s existing project loans and finance expansion.
The senior unsecured debentures are rated at the same level as WHA’s National Long-Term Rating. This is based on Fitch’s expectation that WHA’s future debt will be on an unsecured basis, rather than on a secured basis as its existing debt are. This is because recent project loans granted from its main bankers are on an unsecured basis with a negative pledge condition.
As a result Fitch expects WHA’s secured debt to EBITDA to decrease to below 2.0x by end-2013 from 8.4x at end-2012, as the company aims to refinance its secured debt with the proceeds from these debentures and prepay some of its secured debt relating to investment properties with proceeds from a planned sale of these projects to a property fund late this year.
Therefore, if secured debt to EBITDA remains above 2.0x Fitch would downgrade WHA’s debentures, as the level of secured debt would preclude its senior unsecured debt from being rated at the same level as WHA’s National Long-Term Rating.
Key Rating Drivers
Increasing debt burden: Fitch expects that WHA’s aggressive investment plan over the next two to three years is likely to increase its net debt levels. Nonetheless, expected stronger recurring income and its capability to sell investment properties to property funds should boost EBITDA and reduce financial leverage to 3.5x-4.5x over the medium term, from 9.5x at end-June 2013.
Rising recurring income: Fitch expects rental and service income, mainly from warehouse leases, to increase significantly to above THB1bn by 2015 from about THB360m in 2012. The contribution from recurring income is likely to be 35%-45% of WHA’s total EBITDA in 2014-2015, up from less than 20% in 2013, supported by a short construction period of five to 10 months and high take-up rate from strong demand.
Strong business profile: WHA is a market leader in development of premium built-to-suit warehouses for lease market, where competition is limited to few large players offering different products. WHA’s pre-leased strategy and a strong customer base of large multinational companies with long-term lease contracts also help strengthen its revenue visibility. WHA has maintained a 100% occupancy rate for the past five years for its warehouses, given its prime location and unique quality.
Rating Sensitivities
Negative: Future developments that may, individually or collectively, lead to negative rating
action include:
- Failure to achieve significant de-leveraging by end-2013, with funds flow from operations (FFO) adjusted leverage at above 4.5x on a sustained basis
- Failure to increase rental and service income to above THB1bn by 2015
- Change in the company’s business strategy towards a pre-built approach from the existing pre-lease
Positive rating action over the next 12-24 months is unlikely, given the company’s expansion plan.
Contacts:
Primary Analyst
Somruedee Chaiworarat
Associate Director
+66 2108 0160
Fitch Ratings (Thailand) Limited
Level 17, Park Ventures, 57 Wireless Road, Lumpini, Patumwan,
Bangkok 10330
Secondary Analyst
Obboon Thirachit
Director
+66 2108 0159
Committee Chairperson
Vicky Melbourne
Senior Director
+612 8256 0325