TRIS Rating Co., Ltd. announces today that it has assigned a company rating of Bangkok Dusit Medical Services PLC (BGH) and the ratings of BGH’s proposed up to Bt5,000 million senior debentures with tenors of 3 and 5 years at “A” with “stable” outlook. The proceeds of the debentures offering will be used to repay existing secured bank loans of the company and its subsidiaries. The ratings reflect BGH’s leading position as the largest private hospital operator in Thailand, strong patient volume growth, capable physicians and management, and high quality service. The ratings also take into consideration BGH’s strong franchise network under the brands “Bangkok Hospital”, “Samitivej Hospital”, and “BNH Hospital”. However, these strengths are partially offset by the relatively low return on permanent capital, increasing debt level due to rapid expansion in recent years, concerns over the company’s future leverage as it expands both domestically and internationally, and intense competition in the domestic healthcare market. The “stable” rating outlook reflects the expectation that BGH’s operating performance will be sustained at the current level. The outlook also assumes that the company will mainly fund future investments with internally generated cash flow so that its total debt to capitalization ratio will remain at or lower than 50%. Any deviation from the planned levels of capital expenditures that will push the debt level significantly higher will negatively impact the company’s rating or outlook. TRIS Rating reported that BGH was established in 1969 with an initial registered capital of Bt10 million to engage in a private hospital called “Bangkok Hospital”. Currently, 18 hospitals are operated under the umbrella of the BGH Group with a total of 2,929 registered beds. Thirteen hospitals are operated under the “Bangkok Hospital” brand, three hospitals under the “Samitivej Hospital” brand, one hospital under the “BNH Hospital” brand, and one international hospital under the “Royal Angkor International Hospital” brand. Almost 100% of BGH’s revenue comes from hospital operations. Around 55% of BGH’s patient revenues during the past three years came from inpatients and the remainder came from outpatients. In 2007, BGH achieved Joint Commission International (JCI) accreditation in six of its hospitals, namely, Bangkok Hospital, Bangkok Heart Hospital, Wattanosoth Cancer Hospital, Bangkok International Hospital, Samitivej Sukhumvit Hospital and Samititvej Srinakarin Hospital. TRIS Rating said, BGH has recorded a dramatic growth since 2004 due to acquisitions. BGH purchased Samitivej PLC, BNH Medical Centre Co., Ltd., and several hospitals in the eastern, southern, and northeastern regions of Thailand, including Bangkok Pattaya Hospital Co., Ltd., Bangkok Rayong Hospital Co., Ltd., Bangkok Phuket Hospital Co., Ltd., Bangkok Hadyai Hospital Co., Ltd., and Bangkok Ratchasima Hospital Co., Ltd. Revenue from hospital operations has grown at a compound annual growth rate (CAGR) of 51% over the last three years. The CAGR of outpatient visits per day and admission rate per day during the last three years were 42% and 34%, respectively. However, the CAGR of inpatient days was around 20%. The average length of stay declined from 3.21 days in 2004 to 3.06 days in the first nine months of 2007 (9M2007). The CAGR of revenue per outpatient visit and revenue per inpatient day were around 12%-13% over the last three years. During the last three years, BGH has been able to steadily increase the amount of revenue from foreign patients, from only 25% of total patient revenue in 2004 to 36% in 9M2007. The acquisitions of several hospitals in the past few years caused BGH’s debt to capitalization ratio to increase from 40% in 2004 to 54.5% in 2006 and 49.5% in 9M2007. The management team expects to maintain the debt to capitalization ratio at this level despite growth plans. Recently, BGH spent Bt694.43 million to acquire an additional 12.06% stake in Ramkamhaeng Hospital, thus, increasing its stake from 26.18% to 38.24%. During the next 3-5 years, the company plans to invest approximately Bt2-Bt2.5 billion billion per year in both new and existing facilities. BGH’s new projects comprise a 100-bed facility in Phnom Penh, Cambodia; a 50-bed facility in Hua Hin; and a 60-bed Neuro hospital in the Bangkok Medical Center Complex (BMC Complex). Increasing interest expenses caused earnings before interest, tax, depreciation and amortization (EBITDA) interest coverage to decline from 10.4 times in 2004 to 6.1 times in 9M2007. The funds from operations to total debt ratio improved from 19.2% in 2004 to 24.9% in 2006 and to 21.3% in 9M2007 (non-annualized). However, this ratio is still considered low. The pretax return on permanent capital was relatively low due to the company’s large asset size, not all of which being fully utilized. Operating income as a percentage of sales improved from 20.9% in 2004 to around 22.1% in 2006 and 9M2007, which is in line with the results for other top private hospitals listed on the Stock Exchange of Thailand (SET). However, TRIS Rating sees that the economic slowdown coupled with the relatively high medical costs of private hospitals will challenge the ability of BGH to improve profitability in the near term. -- End Bangkok Dusit Medical Services PLC (BGH) Company Rating: AIssue Ratings:Up to Bt5,000 million senior debentures due 2011 and 2013 ARating Outlook: Stable-------------------------------------------------------Copyright 2008, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. 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