Bangkok--Feb 27--Fitch Ratings
Fitch Ratings (Thailand) Limited has today affirmed Thailand’s MBK Public Company Limited’s (“MBK”) National Senior Unsecured and Short-term ratings at ‘A-(tha)’ (A minus(tha)) and ‘F2(tha)’, respectively. At the same time, the agency affirmed MBK’s outstanding senior unsecured debentures at ‘A-(tha)’ (A minus(tha)). The Outlook is Stable.
The ratings affirmation for MBK reflects its well-established market position in shopping plaza and hotel businesses in Bangkok, its relatively strong and stable cash flow generated from its shopping plaza operations. The ratings also reflect the operating recovery of Sheraton Krabi Beach Resort, and the expected earnings contribution from new investments as well as strategic benefits from its stake in Siam Piwat Company Limited. These positive aspects are, however, partly offset by intensifying competition in the shopping plaza business as a result of increasing supply of retail rental space and renovation of existing operators in the area, but Fitch notes that this should be mitigated by MBK Center’s strategic location, established name, and ongoing renovation. As the 30-year land lease contract of MBK Center with Chulalongkorn University will expire in 2013, its business could be negatively affected if the land lease extension becomes unsuccessful or if the renewal terms are unfavorable. Nonetheless, these concerns are partly mitigated by MBK’s first right of refusal on renewing the lease.
The ratings also take into account MBK’s increased risk appetite, evident in its sustained high level of non-core investments and its rising exposure to residential development business. Despite its policy in early 2005 of limiting non-core investments and equity trading activities, MBK recently acquired additional shares in National Finance Public Company Limited (“NFS”) following its board resolution in December 2005 to increase its stake in NFS to up to 10%. Fitch notes that although the additional investment is not significant, the overall single exposure to NFS stocks is substantial, thus raising MBK’s risk profile. The agency also says that further stock investments in non-core businesses may negatively affect its rating. At end-December 2005, MBK’s total investment value in NFS shares was around THB1.7 billion, which is about 70% of MBK’s short-term investments and around 11% of its total assets.
Due to its ongoing investments in core and non-core businesses, MBK’s net debt to last-twelve-month EBITDAR has remained close to 3x over the past three years, although it recently declined to 2.6x in H106 (the six months ended December 2005). Its EBITDAR-to-gross interest ratio was strong at about 13.7x in H106. Assuming moderate EBITDAR growth and capex of around THB1.6bn during FYE06-FYE08, MBK’s net debt/EBITDAR is likely to decline slightly to 2.2x-2.6x in FYE06 and FYE07. Also, MBK intends to increase the proportion of its shopping plaza’s long-term lease contracts in Q406, which could bring down its net debt/EBITDAR to around 2.0x. Nonetheless, MBK’s leverage may rise if the group invests significantly in additional projects. At present, MBK plans to open a new five-star hotel under the management of the international hotel chain in Samui by July 2008, with investment cost of around THB900 million during FYE07-FYE08. Its other new investments include a THB200m second golf course in Phuket to be completed by end-2006. Although MBK’s short-term debt was high at 63% of total debt at end-December 2005 (FYE04: 43%) due to short-term debt funding for large NFS shares acquisition in Q105 (the three months ended September 2004) and maturing debentures, the relatively solid and stable operating cash flow generated from MBK Center and Pathumwan Princess Hotel, together with the group’s committed undrawn banking facility of around THB1.0 bn, should support MBK’s liquidity position.
Contact: Soamsiri Chadavadh +662 655 4753; Orawan Karoonkornsakul +662 655 4766; Vincent Milton +662 655 4759
Note to Editors: Fitch’s National ratings provide a relative measure of creditworthiness for rated entities in countries with relatively low international sovereign ratings and where there is demand for such 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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