Bangkok--3 Nov--Fitch Ratings
Fitch Ratings (Thailand) Limited has today revised the rating Outlook on Thailand-based Land and Houses Public Company Limited (“LH”) to Negative from Stable. At the same time, Fitch affirmed LH’s ‘A-(tha)’ (A minus(tha)) National Long-term rating and ‘F2(tha)’ National Short-term rating.
The revision of the rating Outlook to Negative is based on LH’s more aggressive financial policy, evidenced from its recent substantial dividend payout for the interim FY2006 results, despite a weaker operating performance and higher funding requirement for investments in other businesses, which resulted in higher-than-expected net debt and worse-than-expected financial leverage profile.
In H106, LH’s EBITDAR dropped 35% yoy to THB1.8 billion, affected by an industry-wide slowdown. Meanwhile, a high dividend payout of THB2.1bn for the second half of FY2005, together with an increase in working capital requirement, a higher capital spending for its recurring property-related business and a capital increase in number of its non-core related companies, mainly Land and Houses Retail Bank (“LHB”) resulted in a substantial increase in LH’s net debt to THB13.4bn at end-H106 from THB10.7bn at end-2005. Despite its weaker operating performance, LH’s financial policy appears less conservative, especially on dividend payouts. LH announced a 100% dividend payout during its interim FY2006 results totaling THB1.4bn, paid in September 2006. LH’s net debt is expected to rise further in H206 due largely to its aggressive dividend payout, notwithstanding projected cash inflows from the sale of assets to property funds. LH also indicated its high dividend policy of at least 70% is likely to be maintained for 2007-8.
LH’s pro forma net debt to EBITDAR ratio is expected to increase to the range of 3.0x-3.5x by end-2006, up from 2.7x at end-H106 and below 2.0x in 2004/05. Its credit protection ratio of above 3.0x is inconsistent with the current rating level, although this is still relatively strong compared to its property peer group locally. LH’s liquidity, while weakening, remains manageable, supported by a cash balance of THB965 million and its remained undrawn committed credit facilities from local financial institutions of THB1.4bn at end-H106. Its ability to access the local capital market and a sizable holding of marketable securities for sale also help support its liquidity profile. Nonetheless, a further increase in net debt or a sustained high level of net debt to EBITDAR ratio over 3.0x in 2007 would negatively affect the ratings. On the other hand, LH’s credit profile would stabilise from the realisation of strong cash flows from business operations and/or substantial asset liquidations which results in a more moderate financial leverage in 2007 than currently is anticipated by Fitch.
Established in 1983, LH is the largest and strongest residential developer in Thailand, benefiting from its extensive land inventory and economies of scale from its large-scale pre-built project development, mainly on mid- to high-end single detached house (“SDH”) projects in the Bangkok’s prime residential suburbs. The founder, Mr. Anant Asavabhokin, remains the largest shareholder with a stake of 30.6%, followed by the Government of Singapore Investment Corporation (13.27% holding).
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.
Contact: Wasant Polcharoen, Lertchai Kochareonrattanakul, Vincent Milton; Bangkok, Tel: +662 655 4755
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