Bangkok--12 Feb--Fitch Ratings
Fitch Ratings (Thailand) Limited has today downgraded the National Long-term rating of Property Perfect Public Company Limited's ("PF") THB350 million secured debentures, due February 2007, to 'BB+(tha)' from 'BBB-(tha)' (BBB minus(tha)). At the same time, Fitch downgraded the National Long-term rating of PF's THB450m partially guaranteed debentures (50% guaranteed by TMB Bank Public Company Limited, rated 'A(tha)'/Stable/'F1(tha)'), due February 2008, to 'BBB(tha)' from 'BBB+(tha)'. The Outlook on the ratings is Negative.
The ratings downgrade reflect PF's worse-than-expected operating performance and a substantial deterioration in its financial leverage in 2006 which has reduced the company's financial flexibility and increased its refinancing risk, as well as the weakening operating environment for 2007. PF's sales and EBITDA performance was very weak in 2006, especially during the first nine months, (sales and EBITDA down 17% year-on-year and 63% yoy, respectively), due to the continued slowdown in overall housing demand, higher construction costs and intensified competition which lowered PF's single detached-housing ("SDH") sales and put pressure on its margins. While Q406 results, which are due to be released shortly, may show some improvement in sales and EBITDA, the overall improvement in leverage is only expected to be modest, due to the continued high level of debt.
It should be noted that PF expects a strong improvement in its earnings performance in 2007, largely driven by a strong sales backlog of THB3.3bn at end-2006, most of which should be recognised in 2007. Together with a more moderate land acquisition and expectations for no dividend payout for this year, PF's net debt should decline, while its net debt to EBITDA ratio is expected to improve significantly to around 7.0x by end-2007. Nonetheless, Fitch believes the company now faces a tougher operating environment, including weaker demand and slower inventory turnover, which could continue to negatively affect its cash flow. Other key credit concerns include PF's liquidity management, although this is partly mitigated by its cash on hand of THB313m and the remaining undrawn credit facilities of THB2.8bn at end-2006.
The Negative Outlook reflects PF's continued vulnerability to a further slowdown in the industry. However, Fitch notes that should the company meet its expected sales growth and manage to substantially reduce its financial leverage in the next 12 months, this could result in a positive revision of the ratings.
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.
Contacts: Wasant Polcharoen, Soamsiri Chadavadh, Vincent Milton, Tel: +662 655 4755.
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