Fitch Ratings (Thailand) has affirmed Raimon Land Public Company Limited's (RML) National Long-Term Rating of 'CCC(tha)'. The rating reflects RML's unfunded liquidity and high refinancing risks over the next 12 months.
Concurrently, Fitch has chosen to withdraw RML's rating for commercial reasons.
KEY RATING DRIVERS
High Refinancing Risk; Unfunded Liquidity: Negative funds from operations (FFO) and significant maturing debt will continue to pose material refinancing risk and liquidity pressure on RML over the next 12 months. RML has a commitment to invest in its new data-centre projects and continue to inject its share of equity into joint ventures (JV) to fund residential property construction, which is concentrated in 2022-2024. It also has maturing debentures totaling THB2.1 billion in 2023, most of which are secured by property assets.
The success of refinancing and securing new funding at the holding-company level is likely to hinge on RML's credibility and favourable market conditions. We understand the company is considering several funding alternatives, which are also subject to market uncertainty and execution risks. Financing at the project level is more manageable because, in addition to the equity injection from JV shareholders, committed facilities are available under the project-financing structure, where debt repayments are tied to proceeds from unit transfers and the projects' cash flow generation.
Subordinated Cash Flows: RML has deployed an asset-light strategy via the partnership structure, committing to improve its business and financial positions. The JV concept should enable RML to better manage new project launches to improve earnings stability without a substantial capital burden from land acquisition and development costs.Subordinated Cash Flows: RML has deployed an asset-light strategy via the partnership structure, committing to improve its business and financial positions. The JV concept should enable RML to better manage new project launches to improve earnings stability without a substantial capital burden from land acquisition and development costs.
However, such structures are opaque and reduce financial transparency, as cash flows are not consolidated into RML's financial statements. There are some projects in the pipeline that could be consolidated as RML is likely to partner with passive investors, leaving the company with significant control over the projects.
Limited Dividends from JVs: Most of RML's current and planned projects have been carried out under the JVs, mainly with Tokyo Tatemono Asia Pte. Ltd. and MEA Commercial Holdings Pte. Ltd. RML owns 51%-60% of the JVs and provides proportionate guarantees for the project-financing loans at the JV level. Our analysis recognises the cash flow contribution to RML from the JVs via dividends only due to limited fungibility of cash flow between RML and the JVs. On the other hand, we include in RML's debt the guarantees that it provided to the JVs' project-financing lenders.
Negative FFO to Persist: RML's small operations at the holding company with sparse project launches has weakened its cash flows. Negative FFO as well as large development exposure, including development costs of the Phuket Villa, the data-centre projects and Bangkok condominium projects under JVs, will continue to drive RML's leverage to an excessive level in 2022-2023, with unclear deleveraging capacity beyond 2023.
We expect the dividend distribution from the JVs to be insufficient to fund FFO over the next two years. Cash proceeds from non-core asset disposals or equity injections could help deleveraging. However, this is subject to uncertainty in the current market conditions and Fitch does not incorporate this in our projection.
Niche Position, Small Scale: RML is a listed residential property developer with a reputable brand in core luxury condominiums, serving both local and foreign buyers. Its key strengths are prime locations in Bangkok's central business district or riverside and premium quality. The operating scale is small with average revenue of THB3 billion a year, or less than 5% of the total revenue of listed Thai residential property developers. Its completed projects were nearly fully taken up in 2021, while improving offshore demand after the border reopening should support new project sales at its JVs.
DERIVATION SUMMARY
RML's closest rating peer is FNS Holdings Public Company Limited (B(tha)/Stable), which is a holding company with investments in several businesses, including residential property development. FNS has better liquidity than RML, given its large cash balance, dividends from several investments and no significant capex commitments. RML is exposed to higher liquidity and refinancing risks due to its commitment to fund project construction at its JVs. FNS is therefore rated multiple notches above RML.
RML's rating is multiple notches below that of JWD InfoLogistics Public Company Limited (BB+(tha)/Rating Watch Positive) due to higher liquidity risks and a weaker business profile. JWD is a Thailand-based integrated logistics operator, which generates more stable income supported by medium- to long-term contracts, while RML mainly generates subordinated cash flows via dividends from its JV residential property projects.
KEY ASSUMPTIONS
Fitch's Key Assumptions Within Our Rating Case for the Issuer:
- Minimal revenue in 2022-2023, as all projects under construction and future projects are carried out under the non-consolidated JVs in Fitch's rating case, while more material revenue generation will come from the data-centre projects in 2024;
- EBITDA loss in 2022-2024;
- No dividend from the JVs in 2022, but a dividend of around THB0.5 billion-1.0 billion a year in 2023-2024;
- Equity injection into the JVs totalling THB1.7 billion over 2022-2024;
- No dividend paid to shareholders over 2022-2024.
RATING SENSITIVITIES
Not relevant as the rating has been withdrawn.
LIQUIDITY AND DEBT STRUCTURE
Unfunded Liquidity: Total debt at end-September 2022 was THB3.3 billion, of which THB1.8 billion was due within 12 months. This consisted of secured debentures of THB250 million due on 27 November 2022, which will be rolled over by the existing investor, short-term unsecured debentures of THB487 million due June 2023, secured debentures of THB900 million due September 2023, and loans of THB170 million.
Several repayment alternatives for these debentures are being explored but have not yet been secured. These include a plan to sell RML's non-core assets or projects that are no longer commensurate with its core luxury focus. The asset sales are under negotiation with the potential buyers and expected to be completed by 2023-2024, according to the company. This, if successful as planned, will help reduce pressure on its leverage and liquidity in 2023-2024. Fitch does not factor in the expected proceeds from any asset disposal because of the uncertain nature of the transactions.
Fitch believes the company's accessibility to financial markets remains weak, given the weak financial profile and unavailability of unencumbered assets. Fitch expects RML's EBITDA interest coverage to remain below 1.0x over 2022-2023, reflecting the vulnerability of the company's financial profile.
ISSUER PROFILE
RML is a listed property developer, focusing on a luxury residential segment, mainly Bangkok condominiums and beachfront villas. It also has exposure to small hospitality and commercial properties that are under construction.
SUMMARY OF FINANCIAL ADJUSTMENTS
Fitch's analysis recognises the cash flow contribution from the JVs via dividends only. The calculation of adjusted debt includes interest-bearing debt of RML and its subsidiaries as well as the obligations under the guarantees RML provides to the JVs. The obligations under the guarantees will change in line with the guaranteed debt drawdown and repayment at the JV level.
Fitch assumes RML will provide a similar proportionate guarantee for the new JVs' project-financing loans as it has provided for existing JVs' loans. The calculation of adjusted inventory includes assets only at RML's level, which are project development cost (including advance payment), property assets purchased for sales, land awaiting development, investment properties, right-of-use assets, and investment in JVs.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.