Bangkok--Jan 26--Fitch Ratings
Fitch Ratings, the international rating agency, has today downgraded Thailand-based MBK’s Long-term National rating to ‘A-(A minus)(tha)’ from ‘A(tha)’ and Short-term National rating to ‘F2(tha)’ from ‘F1(tha)’. Fitch has also downgraded the Long-term National rating of MBK’s outstanding debentures to ‘A-(A minus)(tha)’ from ‘A(tha)’. The Outlook is Stable.
The downgrade mainly reflects MBK’s increased risk appetite, evident in its higher exposure to non-core investments and non-recurring residential property development, which has increased financial leverage and risk exposure of the group. MBK has been increasing its stake in National Finance Public Company Limited (“NFS”), one of its major shareholders, to 9.68% at end-September 2004 from 2.5% at end-June 2003. This purchase, which was mainly debt financed, has raised its overall short-term investments to THB2,068 million from THB324m over the same period. NFS accounted for about three-quarters of MBK’s total short-term investments. These activities contributed to its increased net debt, while raising its exposure to equity investments and the associated market risk of the Thai stock market. MBK is also likely to further develop its residential property development business in the medium term, increasing earnings volatility.
The ratings take into account the increased competition expected in the shopping plaza in Bangkok’s CBD area over the medium term. However, this should be alleviated by MBK Center’s strategic location, established name, ongoing renovation and group synergies via its stake in Siam Piwat Company Limited (“SPW”). Although MBK has first refusal on renewing the MBK Center’s 30-year lease with landlord Chulalongkorn University, which expires in 2013, this may have a negative impact on profit margins if the renewed lease payment increases significantly. The hotel industry also remains highly competitive and its hotel in Krabi has been affected by the adverse impact on the tourist industry caused by the tsunami that hit southern Thailand in late December 2004, although the long-term outlook should still be generally positive.
The ratings also take into account the group’s well-established positions in its core operations, the relatively strong and stable cash flow generated from its shopping plaza, the expected earnings contributions from MBK’s new investments and the strategic benefits of its 30.6% stake in SPW. The Stable Outlook reflects MBK’s strength in its core businesses and the company’s recent policy of limiting its investment in its non-core investment portfolio and its equity trading activities.
Despite its strong operating performance over the past two years, MBK’s debt has remained relatively high due to the ongoing investments (both core and non-core businesses). Net debt-to-the last-12-month-EBITDA ratio remained high at close to 3x in 2004 (compared to below 2x in 2002). Due to the expected moderate improvement in group EBITDA, MBK’s net debt/EBITDA may gradually decline to about 2x in FYE06, assuming capital expenditure of THB500m-THB600m during 2005-2007. Nonetheless, with MBK’s medium-term investment plans including an 800-rai land project in Patumthani, a new resort in southern Thailand and Pathumwan Princess Hotel’s major renovation, leverage may rise again.
A full rating report on MBK is available on the agency’s subscription website, www.fitchresearch.com
CONTACTS:
Tanawat Roongtanapirom, CFA, Analyst,
Corporates, Bangkok, Tel: +662 655 4758;
Orawan Karoonkornsakul,
CFA, Director, +662 655 4766;
Vincent Milton, Managing Director: +662 655 4759
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with sub- or low-investment grade international sovereign ratings. The best risk within a country is rated ‘AAA’ and other credits are rated only relative to this risk. National ratings are designed for use mainly by local investors in local markets and are signified by the addition of an identifier for the country concerned, such as ‘AAA (tha)’ for National ratings in Thailand. Specific letter grades are not therefore internationally comparable. End.