Bangkok--8 Oct--TRIS Rating TRIS Rating Co., Ltd. has assigned the company and issue ratings of MBK PLC (MBK) at “A-” with “stable” outlook. The ratings reflect the company’s well-recognized downtown shopping center, with its strong traffic and stable cash flow. In addition, its strong balance sheet and flexibility to raise fund through long-term lease arrangements with tenants after renewal of leasehold contract also support MBK’s rating. These strengths are partially offset by MBK’s far higher leasehold payments than the existing which will be expired in 2013 and the company’s expansion plans for the next few years, which will require substantial capital expenditures. The ratings also take into consideration the slowdown in Thailand’s economic growth as a result of the uncertain political situation and lower consumer confidence. MBK’s “stable” outlook reflects the company’s ability to maintain its stable cash generation from the MBK Center. Despite substantial capital expenditures planned for 2007-2010, the company is expected to maintain the target net debt to equity ratio of less than 1 times in the medium term. The company’s credit profile should be revised if it has more diversified sources of recurring cash flow or is able to pass through substantial amount of increasing cost under new lease agreement to its tenants, given that the company can maintain its strong balance sheet. TRIS Rating reported that MBK was founded in 1974. Currently, Thanachart Capital PLC (TCAP), together with its group companies, are major strategic shareholders holding a 21% stake in the company. MBK operates a well-known shopping center situated in downtown Bangkok under the ‘MBK Center’ name. The company is also engaged in hotel, golf course, residential property and rice-mill production businesses. However, despite its diversified portfolio comprising many businesses, MBK’s performance is still reliant on MBK Center. Located on leasehold land in downtown Bangkok, MBK Center, together with the Pathumwan Princess Hotel, are MBK’s key strategic properties generating revenue and cash flow of around 45% and 70%, respectively, for the company in recent years. The leasehold of the property, due to the expiration in 2013, will be renewed in late 2007 after the terms and conditions have been agreed upon between the landlord and MBK, and were subsequently approved by the Cabinet in September 2007. The new annual leasing payment of the renewed contract, which will start in 2013, is far higher than current leasing charge of the existing contract. However, renewal of lease contract with the landlord will enhance the company’s financial flexibility as management can raise fund through long-term lease arrangements with its tenants and receive substantial up front payments. TRIS Rating said, MBK’s performance during recent years has been solid. Revenue has continued to increase, reaching Bt5,220 million in the year 2006/2007, from Bt3,941 million in the year 2004/2005. MBK’s profitability continues to be healthy due to the fact that the company has enjoyed the benefit of its current leasehold contract, which is very competitive compared with today’s leasing prices. Operating profit margins have been stable at around 36% during recent years. Cash flow protection continued to improve since funds from operations (FFO) to total debt increased from 25% in the year 2004/2005 to 49% in 2006/2007. This was in addition to an increase of earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage from 16.5 times in 2004/2005 to 19.9 times in 2006/2007. Although the company’s cash flow protection and financial leverage will be weakened after taking into consideration the commitment for payment of new lease agreement, financial profile of the company will remain strong in the near term. The company’s high-level investment in its balance sheet (representing 28% of total assets) reflects its investment policy to build up a sizable portfolio in companies in which MBK has no direct control. This investment provides dividend stream and certain financial flexibility to MBK. The current slowdown in GDP growth has lowered consumer confidence and spending. The retail sales index remained slow during the second quarter of 2007, while the consumer confidence index has now been below 100 for 38 months. However, MBK will not be immediately affected by these factors as its tenants have medium-term rental contracts, said TRIS Rating.