Bangkok--Aug 4--Fitch Ratings
Fitch Ratings (Thailand) Limited today revised the rating Outlook on Thailand’s Asian Property Development Public Company Limited (“APD”) to Stable from Positive. At the same time, the agency affirmed APD’s National Long- and Short-term ratings at ‘BBB(tha)’ and ‘F3(tha)’, respectively. Meanwhile, the National Long-term ratings on the company’s outstanding debentures totalling THB2.6 billion and bills of exchange No. 11-22/2004 and No. 25-36/2004 totalling THB400m were also affirmed at ‘BBB(tha)’. The Outlook revision is due to APD’s higher-than-expected debt and leverage ratios which are likely to remain high over the next 12-18 months and also a deterioration in the industry’s prospects.
The ratings of APD reflect its strong niche position in the inner-city townhouse development market in Bangkok as well as its relatively strong operating performance and manageable debt profile for the property sector. APD enjoys lower-risk, higher-margin and faster turnover from its townhouse development business, compared with single detached housing (“SDH”) and condominium developers. On the other hand, the ratings also take into account the cyclical nature of the residential business. An industry-wide slowdown caused by the sustained high oil prices, rising interest rates and weakening economic growth has negatively affected new housing demand, while intensified competition and rising raw construction materials costs are putting pressure on margins. Other principal risks include unmatched timing of operating cash flows due to the non-recurring nature of projects and slower inventory turnover as a result of project expansion. Mitigating these risks is a strong management focus on these issues.
While funds flow from operations appear relatively strong, APD’s free cash flows (post dividend) have remained tight over the past three years due to its increased working capital as a result of rising construction costs and continued land acquisition. Its net debt sharply increased to THB3.3bn at FYE04 from THB1.5bn at FYE03. At FYE04, APD’s net debt to EBITDA rose substantially to 2.3x (from 1.0x at FYE03), above the company’s projections of below 2.0x. Its net debt increased to THB3.9bn at end-1Q05, while net debt to Last-Twelve-Months (“LTM”) EBITDA further deteriorated to 2.7x. Given its large project expansion and expected high dividend payout, APD’s free cash flow will likely remain tight in 2005, with net debt to EBITDA remaining high in a range of 2.0x-3.0x in 2005/06. Despite increasing leverage, Fitch believes APD’s debt profile should remain manageable. Its liquidity is supported by a strong cash balance (THB642m at end-1Q05), low levels of short-term debt and its remained undrawn credit facilities of THB6.4bn as at end-1Q05.
APD is one of Thailand's leading residential developers with a strong niche position in the middle- to upper-middle townhouse segment in Bangkok. APD also operates construction business through its 64.7% owned Pre-built Public Company Limited. Its core residential business contributed 84% of consolidated revenue in 2004, while its construction business contributes the rest. APD is listed on the Stock Exchange of Thailand, with two families holding a majority stake of 35%.
CONTACT: Wasant Polcharoen, Bangkok,
Tel: +662 655 4763, Vincent Milton +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.
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